Hedge fund giants are about to increase their allocations to Chinese stocks? Onshore funds achieved a 14% return, Bridgewater bets on policy support and valuation expansion.

Under the government stimulus policy aimed at countering the Trump administration's tariffs, the fund affiliated with Bridgewater Associates saw a 14% increase in investment returns in the first half of this year in onshore China. Subsequently, Bridgewater Associates, the world's largest hedge fund with the title of "hedge fund hegemon," became more optimistic about the outlook for the Chinese stock market. It is understood that in a letter to investors sent in the second quarter, Bridgewater's onshore China subsidiary stated that as of June 30, their view on the Chinese stock market has been adjusted to "moderately increase" compared to the "All Weather" strategic allocation. The core reasons cited were policy support, the AI investment boom sweeping through the Chinese market, and the relatively low valuation of the Chinese stock market. Bridgewater officials declined to comment. The letter stated that, following concerns about the trade war leading to a sharp decline in global stock markets, the Chinese government took decisive actions in April to stabilize the economy and the Chinese capital market. This prompted a significant rebound in Chinese stocks and bond assets, with the price of gold also rising continuously against a backdrop of geopolitical uncertainty. Even after a wave of gains, the valuation of the Chinese stock market (including A-shares and Hong Kong stocks) remains lower than stock markets in developed countries such as the US, making Chinese stocks "appealing from an investment perspective," as stated in the letter to investors by Bridgewater. "Looking ahead to the future of the Chinese stock market, we expect that the supportive policy stance will continue, providing significant support for overall risk asset prices," Bridgewater wrote in the letter. "As such, we are continuously increasing our allocation to a basket of risk assets." According to investor letters from the past two quarters, Bridgewater's view on short-term bonds has been adjusted to "moderately increase" from a "slight increase" at the end of March. Their stance on commodities has shifted from "neutral" three months ago to "slightly reduced." Focused on the diversified multi-asset Bridgewater "All Weather Plus" strategy, the fund has outperformed many local investment peers in recent years, helping the Bridgewater onshore China assets grow by approximately 40% last year to over 55 billion RMB (about 7.7 billion USD). The fund's onshore fund saw investment returns of around 5.8% in the second quarter, significantly expanding returns for the first half of the year to 13.6%. Sources revealed that the actively managed investment strategy, which makes dynamic adjustments based on team views, contributed approximately 2.3% of returns in the second quarter, adding to the 3% contribution in the first quarter. According to private placement statistics from the Shenzhen Ranking Network, hedge funds in China that adopt a multi-asset strategy saw an average return of 7.3% in the first half of the year. The average return for 51 hedge funds tracked by the website with assets exceeding 10 billion RMB was 11%. Meanwhile, the Shanghai and Shenzhen 300 Index saw flat performance, while propelled by an unprecedented surge in AI investments in China, heavyweight tech giants such as Alibaba and Tencent saw their stock prices continue to rise, driving the Hang Seng Index, which is dominated by Chinese stocks, up by more than 20%. Alibaba and Tencent, which hold a significant weight in the Hang Seng Tech Index, have risen by 18% year-to-date (at one point exceeding 30%), significantly outperforming the S&P 500 Index and the Shanghai and Shenzhen 300 Index. Fearing to miss out on the "next Silicon Valley!" Sovereign wealth funds are expected to surge into China, propelling the Chinese stock market towards a prosperous bull market According to the latest "Global Sovereign Asset Management Research" released by the US asset management giant Invesco Ltd., global sovereign wealth management institutions have shown a significant increase in interest in allocating to Chinese assets, with the vast majority of funds planning to increase their investments to seize the historic technological revolution opportunity driven by Chinese tech. "Sovereign wealth investors managing $27 trillion in assets are increasingly bullish on the Chinese tech industry, as they do not want to miss the next wave of innovation," concluded the Invesco Asset Management Company's annual survey. According to Invesco's first-quarter 2025 survey of 83 sovereign wealth funds and 58 central banks, 59% of respondents said they consider China a high-priority or medium-priority allocation target for the next 5 years, far higher than last year's 44%. "There is a Fear Of Missing Out (FOMO) bullish sentiment here; China's tech boom trend is like the next Silicon Valley," said Rod Ringrow, head of Invesco's institutional department. "Sovereign assets generally believe that Chinese tech companies will be highly competitive globally in the future, and they want to ensure they are involved now." Overall, the Invesco survey shows that since the emergence of DeepSeek and Alibaba's launch of open-source AI models with low costs and high performance, which shook Silicon Valley and Wall Street, sovereign wealth funds managing around $27 trillion in assets are increasingly bullish on the Chinese tech industry. The optimistic sentiment driven by the "AI application wave" sparked by DeepSeek has spread to other technology sectors such as humanoid Siasun Robot & Automation, biotechnology, advanced manufacturing, and electric vehicles. The survey found that approximately 78% of surveyed global sovereign wealth asset management institutions expect that China's technology and innovation-driven industries will rank among the top global competitive sectors. The Shanghai and Shenzhen 300 Index, which has lagged behind Hong Kong stocks, is expected to enter an upward trajectory The unprecedented Chinese artificial intelligence investment boom led by DeepSeek has continued to boost Chinese tech stocks. Large Chinese tech companies such as Alibaba and Tencent have the capability to develop disruptive application-level technology products covering 1.4 billion people, and the acceptance of new AI technologies by both companies and individual consumers continues to grow. For the Chinese stock market, including Hong Kong and A-share markets, the epoch-making "ultra-low-cost AI large model" introduced by DeepSeek has driven large models to deeply penetrate various industries in China, and Alibaba's strong performance and ambitious "AI super blueprint" have become unprecedented "bull market catalysts" for global investors to reassess Chinese assets, especially as they are already concerned about the high valuations of US tech stocks. According to a Goldman Sachs report, even after a significant increase, the average valuation of the "Top Ten Private Enterprises" in China is around 13.9x 12-month forward price-to-earnings ratio, representing only a 22% valuation premium over the MSCI China Index, significantly lower than the historical average and well below the nearly 50% valuation premium level for the "Big Seven US" tech stocks. In the view of Goldman Sachs, which recently reiterated its bullish stance on the Chinese stock market, the Shanghai and Shenzhen 300 Index, which has performed far below the Hang Seng Index and the S&P 500 Index in the first half of this year, is expected to see a significant increase. Goldman Sachs predicts that by the end of the year, the Shanghai and Shenzhen 300 Index will increase by over 10% to 4600 points. As of the close of Tuesday, the Shanghai and Shenzhen 300 Index closed at 4019 points. As a non-strict benchmark, covering almost all core assets in China, the Shanghai and Shenzhen 300 Index, which some institutions compare to the S&P 500 Index representing core assets in the US, Europe STOXX 600 Index, and Nikkei 225 Index, along with these indices form the so-called "global core assets," with the scale and influence of the Shanghai and Shenzhen 300 Index second only to the S&P 500 Index. Despite investors remaining cautious and a mediocre performance in the first half of the year, Goldman Sachs expects that the Chinese stock market will see stronger performance in the second half of 2025, supported by factors such as the AI-driven bullish wave in the Chinese stock market, expectations of loose policies, improved corporate earnings, and stabilization of macroeconomic indicators. In addition, Goldman Sachs maintains a "buy" rating for Chinese A-shares and overseas-listed Chinese stocks, citing attractive valuations and the potential for funds to flow back into the market as market sentiment improves.