Foreign Investors Return to China’s $19 Trillion Stock Market
After three years of retreat, foreign investors are once again eyeing China’s stock markets, encouraged by strong tech growth, easing tariffs, and a desire for diversification beyond U.S. assets.
China’s progress in artificial intelligence, semiconductors, and biotech innovation in 2025 has reassured global investors that the U.S.-China trade war and Washington’s tech export bans have not slowed innovation in the world’s second-largest economy.
Sentiment has been further lifted by a U.S.-China tariff truce and China’s domestic monetary easing policies. As a result, the Shanghai Composite Index recently hit a decade high, while Hong Kong stocks reached a four-year peak.
Foreign Capital Testing the Waters
The market rally has so far been fueled mainly by domestic investors, but early foreign buyers are returning. Brett Barna, a former hedge fund manager now running two New York single-family offices, said China offers diversification as its onshore A-share market remains largely uncorrelated with global trends. He is planning a new investment platform to give U.S. and European capital easier access to Chinese markets.
Hedge Funds and Asset Managers Reentering
Morgan Stanley reported that August marked the largest monthly buying of Chinese equities by hedge funds in six months. Morningstar data also showed fewer new “ex-China” emerging market funds being launched, reflecting renewed interest in China as a standalone asset class.
London-based Polar Capital shifted to a positive stance on China in late 2024, boosting its exposure to over 30% of its emerging market portfolio. Fund manager Jerry Wu highlighted momentum across AI, biotech, and robotics, driven by breakthroughs such as DeepSeek’s cost-efficient AI model.
Meanwhile, Cambridge Associates reported a surge in client interest, with about 30 inquiries this year alone—compared to minimal demand in 2023. Many global investors are planning visits to China and Hong Kong in 2025 to explore opportunities firsthand.
Challenges Remain
Despite growing optimism, China’s economy continues to face headwinds. Factory output, retail sales, and other indicators remain weak. Foreign direct investment fell 13.2% in the first five months of 2025, prompting Beijing to announce new policies to attract capital.
Analysts caution that deflationary pressures and long-standing structural issues may limit sustainable inflows. CLSA strategist Alexander Redman remains cautious, while Wu of Polar Capital noted the AI boom must benefit the wider economy to support growth beyond 2025.
Still, investment firms like AllianzGI see foreign investors in a “rerating phase,” reassessing China’s long-term competitiveness. As one fund advisory put it: “Investability confirmed. Global participation in the onshore equity market is gaining momentum.”
