The A-share market in China experienced a strong rebound before the National Day holiday, with significant gains over four consecutive days from September 24 to 27. On September 30, the last trading day before the holiday, the Shanghai and Shenzhen markets saw their transaction volume reach a record high of 23.626 trillion yuan, surpassing the previous peak set in May 2015.
Global investors are preparing to re-enter the Chinese market, influenced by recent changes in market sentiment and China's efforts to attract more capital and stimulate consumer spending. These measures have significantly enhanced the valuation attractiveness of Chinese companies. Notably, China's market capitalization, including Hong Kong stocks, has surged by $3.2 trillion since the Federal Reserve's rate cut and subsequent Chinese stimulus policies in mid-September.
Hedge funds are entering the Chinese stock market at a record pace, seeking investment opportunities sparked by China's stimulus measures aimed at accelerating economic recovery. Optimism about the market's upward trajectory is high, with some institutions setting purchasing limits and indicating that stock-picking may not be necessary during this surge.
On October 2, during the A-share market's National Day closure, the Hang Seng Index in Hong Kong rose by 0.7%, at one point exceeding the 22,000-point mark, while the Hang Seng Tech Index increased by 1.9%, reaching a peak gain of over 10% during the session.
Despite ongoing geopolitical tensions between the U.S. and China, investor sentiment has improved due to China's actions to achieve its GDP growth target of around 5% for the year. Key policy measures included a major policy interest rate cut, expected to benefit over 150 million people by reducing mortgage rates.
In the week leading up to the National Day, several major cities such as Beijing, Shanghai, Guangzhou, and Shenzhen adjusted their housing purchase restrictions, signaling positive developments in the real estate market. Other regions, including Henan, Xiamen, Wuxi, and Chengdu, also introduced policies to optimize the housing market.
Asset management firms, such as Pictet Asset Management and Abrdn, have selectively increased their holdings in Chinese stocks, awaiting further detailed policy plans from the Chinese government. They view the potential for gains as outweighing the risks.
The weight of Chinese stocks in the MSCI Emerging Markets Index rose to 27.8%, the highest level since November 2023, reflecting their regained dominance. Despite the prevailing "pessimistic sentiment," some investors remain optimistic about China's market, highlighting greater stimulus measures and attractive valuations.
China's positive market trends are also influencing other emerging markets. South Africa's stock market has seen consecutive monthly gains, partly driven by optimism about China's stimulus measures boosting demand for South African exports.
Hedge funds like Mount Lucas have taken bullish positions on Chinese ETFs, and firms like GAO Capital and Timefolio are buying Chinese blue-chip stocks. Additionally, Tribeca Investment Partners is acquiring shares in Australian mining companies tied to China.
Data from Goldman Sachs indicates that hedge funds were major buyers of Chinese stocks during the week ending September 26, setting a new record for net purchases. This rebound is fueling widespread optimism about China's market recovery, attracting major institutional investors like David Tepper (Trades, Portfolio) and BlackRock, who are increasing their stakes in Chinese assets.
