Global Funds End Four-Year China Underweight, Shift to Benchmark Neutral
nashnova research
Nearly 2,800 global active funds have shifted their China allocation back to benchmark neutral since June, ending a four-year underweight — removing a key structural drag on Chinese equities, though a sustained recovery still hinges on earnings delivery.
Four years of selling — what just changed?
Bank of America strategist Nigel Tupper surveyed nearly 2,800 global funds and found that active long-only funds moved to benchmark neutral on China as of June — neither overweight nor underweight.
These funds collectively hold $562 billion in Chinese equities. This means → the persistent "sell China" pressure that defined the past four years has essentially stopped.
In plain terms = the big global funds are no longer actively cutting China, but they are not adding either — they have simply returned to "hold whatever the benchmark says."
Why now? — valuation and earnings, two lines converging
Valuation: The MSCI China Index trades at roughly 10.2x 12-month forward P/E — a measure of price relative to expected earnings over the next year — below its 10-year average of 11.7x. In plain terms = by historical standards, Chinese stocks are still cheap.
Earnings: Shanghai-listed companies posted 17.6% year-on-year net profit growth in the first half, driven mainly by tech hardware and new-economy firms.
But the recovery is uneven — real estate and consumer sectors still lag. This reflects a selective rebound concentrated in a few sectors, not a broad-based upturn.
What are industry insiders saying?
Gary Tan, portfolio manager at Allspring Global Investments, said: "Selling pressure is nearing a bottom, and investor focus is shifting from positioning to earnings delivery."
His core argument: China's market does not need global investors to turn outright bullish — it only needs them to stop selling.
This means → the current story is not "foreign money is rushing back in" but "foreign money has stopped rushing out" — and that alone relieves structural pressure.
What does ETF flow data show?
China- and Hong Kong-focused ETFs recorded $19 million in net inflows in August, versus $1.94 billion in net outflows in July — a sharp reversal.
At the same time, ex-China emerging-market fund outflows continued to rise. This reflects a shift in sentiment toward China specifically, not a broad EM rebound.
Bloomberg Intelligence analyst Rebecca Sin noted: "Systematic ETF underweighting of China may be nearing a bottom."
Recovery is uneven — where is the money going?
Despite the positioning floor, the CSI 300 has fallen roughly 11% this quarter, and investors remain highly selective.
Herald van der Linde, HSBC's head of Asia-Pacific equity strategy, favors tech hardware and biotech, calling consumer and real-estate sectors "China's past."
In plain terms = foreign capital is no longer cutting China across the board, but stock picking is extremely narrow — AI supply chains and innovative pharma are the most favored bets.
Selling pressure is fading — what comes next?
The retreat of foreign selling removes a key structural headwind for Chinese equities.
But whether the market can truly stabilize depends on sustained earnings delivery — especially across the AI-related supply chain.
This means → the worst phase (persistent foreign selling) may be over, but "not selling" and "actively buying" are very different things — earnings data is the next critical checkpoint.
市场有风险，内容仅供研究参考，不构成投资建议。