Hedge funds, particularly those based in the U.S., have resumed investing in Chinese equities due to growing optimism over U.S.-China trade negotiations, according to a Morgan Stanley report. The MSCI China Index and CSI 300 rose 2.4% and 1.9%, respectively, as markets anticipated a breakthrough in the Geneva trade talks held over the weekend. Encouraged by indications of a potential trade deal, hedge funds increased their exposure to Chinese stocks traded both domestically and in the U.S., even as they reduced investments in other Asian regions like Thailand, Hong Kong, India, and Australia.

The Geneva talks concluded with both U.S. and Chinese officials expressing positive sentiments, though specific details of any agreement are pending. President Trump hinted at a significant reduction in Chinese tariffs, down from 145% to 80%, signaling a possible easing of the trade war. Although Chinese markets had fallen following initial tariff announcements, they have nearly recovered. Morgan Stanley noted that hedge fund exposure to China remains well below historical highs, with most investors still viewing China as a tactical opportunity.

Investment firms like M&G are increasing their China holdings, citing favorable risk-reward dynamics and low global investor positioning.

Source: Reuters