China stocks on course for best hedge fund inflows in 6 months, Morgan Stanley says

Global hedge funds ramped up their bets on China shares, with August on track to mark the biggest monthly buying since February, a Morgan Stanley note shows.

Hedge fund buying has been "heavily skewed towards (onshore) A-shares" since early August, Morgan Stanley said, in stark contrast to the influx of funds into Hong Kong's tech-heavy stock market in February following DeepSeek's artificial intelligence breakthrough.

By sector, consumer staples and industrials attracted most inflows last week, according to the Morgan Stanley note on Tuesday.

Meanwhile, hedge funds sold stocks of internet giants listed in Hong Kong through a combination of reduced long positions and short-selling.

Onshore China shares, which lagged regional peers in the first half of the year, staged a catch-up rally in the third quarter and hit a 10-year high this month.

Benchmark Shanghai Composite surged 12 percent while blue-chip CSI 300 jumped 9 percent so far this month.

Abundant liquidity, coupled with optimism around U.S.-China trade talks, has boosted the sentiment, analysts said.

China-focused equity long-short funds on average are up 3 percent this month till August 22, extending year-to-date gains to 13.5 percent, Morgan Stanley estimates.

REUTERS