By China has resorted to a bunch of policy measures over the past five years, but none of them have particularly succeeded in driving professional investors to the world’s second largest economy.
According to recent data, portfolio managers have materially lowered their exposure to Beijing since mid-2020.
Ironically, it’s the government interventions aimed at improving investment sentiment that’s backfiring and keeping investors away from Chinese equities.
Why? Because the decision makers at actively managed funds increasingly see these stocks as trading on government stimulus instead of fundamentals.
Why do fund managers remain underweight Chinese stocks?
Professional investors have significantly lowered their allocation towards Chinese equities, including those listed in Hong Kong, over the past five years, according to Morningstar provided data of 34 actively managed funds.
Pando CMS Innovation ETF, for example, pulled out of China and Hong Kong stocks last year as “predicting the policy of Chinese stock market is really hard for us. We’d like to embrace certainty over uncertainty.”
The exchange-traded fund unloaded its stakes in Meituan, Tencent, and Alibaba last year to load up on US based AI chip giant Broadcom and the electric vehicle behemoth Tesla Inc.
Both AVGO and TSLA are currently up close to 100% versus 52-weeks ago.
Chinese economy is expected to slow down in 2025
HSBC’s Managed Growth Fund has also trimmed its exposure to China rather meaningfully over the past five years.
In 2020, it had nearly 20% of its assets allocated to the largest Asian economy, including Hong Kong. By late last year, however, that allocation had been reduced to 3.4% only.
Some professional investors that have reduced exposure to China, like Singapore’s APS Asset Management even went on to say, “with the benefit of hindsight, we should have sold everything.”
Note that UBS expects economic growth in China to slow down to 4.0% this year. For 2026, its estimate is for an even lower 3.0% growth.
Investor do not fully understand government stimulus
Fund managers are keeping away from Chinese stocks as they’re increasingly concerned that stimulus measures, and not the fundamentals, are driving their prices in 2025.
“We’re okay being late to a recovery in Chinese equities to help us mitigate the risk of this recovery not being reality,” according to Adam Coons – the chief investment officer at Winthrop Capital.
While the Chinese government’s desire to improve stock market sentiment has somewhat worked so far, Brian McCarthy of Emerging Sovereign Group is convinced that it’ll fail eventually.
Other investors, including Brian Arcese of Foord Asset Management, cited lack of understanding of government policy as a reason to remain underweight on Chinese stocks. He added:
Corporate fundamentals remain the primary driver over the longer term, as sustained growth and performance ultimately depend on the strength of underlying businesses, and their ability to adapt to economic conditions.
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