Global Funds End Long Underweight on Chinese Stocks as Yields Bite
For years, many global investment funds kept a deliberate distance from Chinese stocks, holding less than the market’s benchmark weight would suggest. That stance is now showing cracks. According to a recent global and Asia fund manager survey by Bank of America, rising bond yields have replaced fears of an artificial intelligence bubble as the single biggest risk investors see in markets today.
The backdrop is a bond market that has turned unusually turbulent. The yield on the 10-year US Treasury note, a benchmark for borrowing costs worldwide, pushed above 5%. The 30-year yield climbed to its highest level in years. When the safest assets suddenly pay more, the calculus for every other investment changes, and portfolios built around cheap money need rethinking.
That shift is rippling across borders. Some global funds have begun to close out long-held underweight positions in Chinese shares, according to market participants, marking a change in cross-market allocation. Chinese equities have traded at a discount to many developed markets for an extended period, which makes them look relatively inexpensive if the global picture stabilizes. For managers hunting for diversification, that discount has become harder to ignore.
At the same time, money has been flowing into Hong Kong-listed shares through the southbound connect programs that link mainland Chinese investors with the city’s exchange. Wind data cited by Chinese financial media showed cumulative net southbound inflows of nearly 430 billion Hong Kong dollars so far this year, making mainland money one of the most important sources of new demand for Hong Kong stocks. Over the past month, information technology, industrial and financial companies drew the largest net buying.
Institutions are not simply switching from bonds to stocks, however. The message from investment managers is more nuanced: diversify, and think harder about the length of bonds you hold. With short-term rates high but long-term uncertainty greater, the shape of a yield curve matters as much as its level. Investors are spreading exposure across regions, sectors and maturities rather than making a single bold bet.
On the Chinese mainland, fund companies have offered their own signal. Several managers, including E Fund and Hui An, recently relaxed purchase limits on their best-performing funds. Such limits are typically imposed when money threatens to pile in too fast at market highs; loosening them after a pullback is becoming a common practice as the industry matures. Analysts read the moves as a cautiously positive sign, though they caution that overseas liquidity expectations and volatile technology valuations remain the main near-term risks for Hong Kong and mainland markets.
None of this means a smooth ride. Chinese equities are still sensitive to swings in global risk appetite, and the technology sector’s valuations can move sharply on headlines about AI spending or chip supply. Bond yields could climb further if inflation or government borrowing surprises to the upside. But the direction of travel is notable: after a long period of caution, some of the world’s largest allocators are at least re-examining the case for China, not out of enthusiasm, but because the alternatives have become more complicated.