Hedge funds bet on China stocks for 4th week

Global hedge funds are extending their buying spree in Chinese equities for a fourth consecutive week, joining a growing number of investors anticipating a market recovery, Reuters reported on Wednesday.

Chinese stocks, previously hit hard, have rebounded significantly since February, coinciding with Beijing’s economic reforms and positive economic indicators.

Hedge funds’ four-week buying spree in Chinese stocks reflects growing market confidence, mirroring a third-of-a-point rise in Hong Kong’s Hang Seng Index and a 16 per cent gain in the MSCI China index year-to-date.

Goldman Sachs has raised its price targets for the MSCI China and China’s CSI 300 Index. Some hedge funds are using call options to potentially increase their returns from rising stock prices, according to a Goldman Sachs report.

Analysts believe the recent surge in buying activity is driven by historically low allocations to China by investors and the rapid pace of the recovery.

This performance pressure is prompting investors to increase their exposure to Chinese stocks, contributing to the upward trend.

China has issued 1 trillion yuan ($138 billion) in stimulus bonds and implemented measures to support the housing market to boost market confidence.

However, some investors, like Indus Capital, remain cautious due to ongoing economic challenges and see more short-selling opportunities than long positions.

($1 = 7.2392 Chinese yuan)