Global investors double down on Chinese assets

China's resilient economy, robust growth potential and improving corporate profitability are fueling more optimism and renewed interest in Chinese assets among foreign investors.

Driven by China's advancements in technology and rising confidence in its policy support to stabilize economic growth in the second half of the year, global investors are ramping up their exposure to Chinese equities and bonds.

Major foreign financial institutions, including United States asset manager Franklin Templeton, investment bank Goldman Sachs and Swiss bank UBS have stepped up their allocations or expressed optimism about Chinese equities, citing favorable valuations, a peak in China-US trade tensions and optimism regarding China's artificial intelligence-led transformation.

Market watchers and economists said that a combination of proactive fiscal measures, targeted industrial policies and accelerating technological innovation is reinforcing China's appeal as a destination for global capital.

According to data released on Monday by the National Bureau of Statistics, China's factory activity gauge improved marginally in June, as the official purchasing managers index for the manufacturing sector came in at 49.7 in June, up from 49.5 in May. Notably, the PMIs for equipment manufacturing, high-tech manufacturing and the consumer products sector came in at 51.4, 50.9 and 50.4, respectively, remaining in expansion territory for two straight months.

"The story of China now is about growth," said Fang Dongming, head of China Global Markets at UBS.

Foreign investors will be attracted as long as companies promise growth and profit, whether it is in technology, healthcare, new energy or new types of consumption, Fang said.

Multibillion-dollar US fund manager Franklin Templeton has started edging back into Chinese stocks for the first time in years, with a group of its funds managing around $2 billion buying into Chinese stocks in recent weeks, Zehrid Osmani, head of the company's Global Long-Term Unconstrained team, told Reuters recently.

The company believes that trade tensions with the US have peaked, and that China is expected to further support its technology giants, according to Osmani.

Economists believe that China is well-positioned to achieve its annual growth target of around 5 percent, backed by proactive fiscal policy and moderately accommodative monetary policy.

Zhang Xiaoyan, associate dean at Tsinghua University's PBC School of Finance, said that China's top leadership may sharpen its focus on ensuring domestic economic stability and maintaining stable relationships with its trading partners, which would further boost the confidence of domestic and foreign investors in the Chinese economy.

Liu Qiao, dean of Peking University's Guanghua School of Management, said that new policy tools in the second half might include fiscal transfers or cash subsidies for low-income groups, and supportive policies to address pressure on enterprises, especially listed companies, which would improve corporate cash flow and strengthen investment appetite.

Driven by this favorable policy environment and long-term opportunities in sectors like technology, new energy and advanced manufacturing, global asset managers are reassessing their China allocations.

The return of global capital is reflected in broader data. According to Goldman Sachs, global active funds have increased their China equity allocations from 5 percent in late September to 6.4 percent by late April. The investment bank maintains an "increase" stance for Chinese stocks, citing improving corporate profitability, foreign capital inflows and long-term value in yuan-denominated assets.

Fu Si, China portfolio strategist at Goldman Sachs, has forecast that the CSI 300 Index — tracking 300 heavyweight stocks in Shanghai and Shenzhen — could reach 4,600 points, about 10 percent above current levels. Similarly, the MSCI China Index, widely tracked by global investors, is expected to rise another 10 percent in the coming months, supported by its current price-to-earnings ratio of just 11.5.

Goldman Sachs also identified artificial intelligence as a key growth driver. It estimated that AI proliferation could lift the overall profitability of Chinese stocks by 2.5 percent annually over the next decade. China's AI breakthroughs may attract $200 billion in fresh capital into its equity market, potentially driving stock prices up 15 to 20 percent.

Zhang Di, chief macro analyst at China Galaxy Securities, highlighted that new policy-based financial instruments are likely to be introduced soon to support economic growth.

"That will help support the growth of infrastructure and real estate in the second half of the year. And the focus will also be placed on supporting technological innovation, consumer-related infrastructure, and key sectors such as trade-in deals for consumer goods," he said.

According to Nomura Orient International Securities, Chinese equities could outperform global peers in the second half of 2025. Factors include expectations of more supportive policy, improving domestic liquidity, and rising global interest in Asia-Pacific markets amid a weaker US dollar.

Market performance so far reflects rising confidence. The Shanghai Composite Index has gained about 5.6 percent so far this year, while the CSI 300 is up over 3 percent. Meanwhile, the Hang Seng Index in Hong Kong has surged over 23 percent this year, second only to South Korea's KOSPI, which saw a 28 percent increase.

Contact the writers at shijing@chinadaily.com.cn