Despite China stock 20% Surge, Investors Pull Out, Shift to 'Ex-China' Funds
1min read Global hedge funds made a significant shift in October, selling off Chinese stocks while increasing their holdings of U.S equities ahead of the U.S election, Goldman Sachs reported. Goldman estimates that by October 23, hedge funds had unwound nearly 80% of their peak investments in Chinese stocks.
Following a 20% surge in China's stock market due to extensive stimulus policies, heavy outflows have pulled markets back from their highs this month. Despite the recent rally in Chinese stocks, investors are increasingly turning to emerging market funds that exclude China, citing escalating tensions between Beijing and the West.
Franklin Templeton recently launched an "ex-China" emerging markets fund to meet demand from investors seeking separate allocations for Chinese stocks, allowing greater exposure to India, Taiwan, and other markets.
So far this year, "ex-China" equity funds have seen $10 billion in net inflows, according to JPMorgan—surpassing total inflows into broader emerging market equity funds. The number of these funds has almost doubled globally to 70 in the last two years, Morningstar data shows.
Political motivations for avoiding Chinese stocks are still largely concentrated among U.S. investors, with large pension funds reducing exposure over national security concerns.
Meanwhile, hedge funds have returned to U.S. equities for the first time in six months, driven by strong job data and corporate earnings that have eased recession worries, according to Goldman.
In anticipation of increased volatility from the tight U.S. presidential race, hedge funds have also reduced leverage in the past week and throughout October.
