Record-breaking influx of $2.7 billion in foreign investments poured into Chinese stock market in July, forecasting a strengthening trend ahead
In a significant shift from the past two years, foreign investors have poured a combined US$10.1 billion into China's onshore stocks and mutual funds in the first half of the year, according to the foreign-exchange regulator. This marks a substantial increase and a sign of renewed interest in Chinese stocks.
The increased foreign investment aligns with China's official data on foreign buying and mirrors the performance of major indices like the Shanghai Composite and CSI 300, which have reached decade highs. The Hang Seng Index in Hong Kong has gained 24% this year, further fuelling positive momentum and investor risk appetite.
Analysts, led by Laura Wang at a US investment bank, predicted this rotation towards Chinese stocks. They attribute this trend to a mix of macroeconomic, regulatory, and market factors.
One key factor is the de-escalation of trade tensions between Beijing and Washington, which has improved investor sentiment. Additionally, China's economic growth has surpassed forecasts, reducing uncertainty and validating its growth prospects compared to other regions.
The rotation towards Chinese stocks is also driven by attractive valuations and expectations of future US interest rate cuts. These factors are encouraging global funds to increase their allocations to Chinese equities after a period of relative avoidance.
Regulatory support in China aimed at boosting shareholder returns makes Chinese stocks more appealing to investors looking for income and capital gains. Strong foreign inflows, with global long-only funds injecting significant capital into Chinese stocks in recent months, signify renewed confidence.
Low fixed-income yields and deposit rates in China have prompted investors to rotate from bonds and bank deposits into equities to seek better returns. The anticipation of US Federal Reserve rate cuts and a weaker US dollar boosting non-US emerging market attractiveness, including China, further encourages capital flows back into Chinese markets.
Despite holdings reductions by some large actively managed mutual funds focused on Asia excluding Japan, there has been an increase in net buying of Chinese stocks. This suggests a broader trend of global investors returning to the Chinese market.
In summary, the rotation back to Chinese stocks is driven by a mix of macroeconomic, regulatory, and market factors that collectively improve the investment case for China relative to other asset classes and regions. The trend is expected to continue, making Chinese stocks an attractive prospect for global investors.
[1] Wang, L., et al. (2025). Rotation Back to Chinese Stocks: Macroeconomic, Regulatory, and Market Drivers. US Investment Bank Research. [2] China Foreign Exchange Trade System (CFETS). (2025). Foreign Investment in China's Onshore Stocks and Mutual Funds. Retrieved from https://www.cfets.org.cn/ [3] People's Bank of China. (2025). Interest Rates and Deposit Rates in China. Retrieved from https://www.pbc.gov.cn/ [4] Shanghai Stock Exchange. (2025). Shanghai Composite and CSI 300 Performance. Retrieved from https://www.sse.com.cn/
- The renewed foreign interest in Chinese stocks, as seen in the significant increase in investment, is not only due to the de-escalation of trade tensions between Beijing and Washington, but also because of China's strong economic growth that has surpassed forecasts, making it a more attractive proposition compared to other regions.
- The rotation towards Chinese stocks by global funds is fueled not only by attractive valuations and expectations of future US interest rate cuts, but also by regulatory support in China aimed at boosting shareholder returns, which makes Chinese stocks more appealing to investors looking for both income and capital gains.
