U.S. hedge funds sold $0.7 billion in Chinese stocks this month, while Goldman Sachs and BlackRock suggested increasing their holdings of "Chinese assets"

According to a research report released on Thursday by Morgan Stanley strategist Gilbert Wong, US hedge funds took advantage of the double-digit percentage surge in the Nasdaq Golden Dragon China Index this month to profit from their positions. In July, they sold a total of $700 million worth of US-listed Chinese stocks.

Among them, Pinduoduo, Baozun China, and Vipshop were the stocks with the highest selling volume by long-only funds. Ctrip, on the other hand, was bought by fund managers with the largest amount reaching $548 million.

At the same time, Chinese electric vehicle manufacturers have shown resilience in the US hedge funds market this month, as both NIO and XPeng Motors have experienced significant short-covering by US hedge funds by the end of the month.

From a data perspective, the Nasdaq Golden Dragon China Index has risen by over 18% in the month to date, reaching its highest level in nearly six months since February 9. On Friday, it surged by 6%, breaking the record set on Monday for the largest single-day increase since February this year, which was 4.3%.

Morgan Stanley's analysis suggests that the strong performance of Chinese stocks this week is mainly due to the surge in short-covering, as traders rapidly increased their positions on Tuesday and Wednesday, mainly due to the optimistic outlook for policy support following the release of signals from the Political Bureau meeting for the second half of the year.

Pinduoduo has risen by over 28% in July, Baozun China by over 5%, and Vipshop by over 9%, providing profitable opportunities for the US hedge funds that sold these stocks. NIO has risen by 49% and XPeng Motors by nearly 69%, with both stocks showing significant gains in the latter part of this week.

Similarly, Goldman Sachs' latest research report states that "the window of opportunity for going long on China has opened." Its hedge fund clients made significant net purchases of Chinese stocks on Tuesday, with the fastest growth in nine months, focusing mainly on A-shares listed on the mainland and Chinese companies listed in Hong Kong.

Among the 11 sectors of Chinese stocks tracked by Goldman Sachs, its hedge fund clients made net purchases in 9 sectors other than healthcare and utilities, with a focus on non-essential consumer goods, essential goods, finance, materials, and industrial stocks.

Goldman Sachs' bulk brokerage team stated that there is currently relatively little buying of Chinese stocks (American Depositary Receipts - ADRs). Overseas investors such as global actively managed funds and hedge funds have relatively light positions in Chinese assets, indicating that there is still more room for growth in the future:

With the economic policy tone for the second half of the year determined at this week's Political Bureau meeting, the "policy bottom" of the Chinese market has been formed, and the short-term rebound window of the Chinese stock market has now opened. Based on empirical evidence, Chinese stocks are expected to perform better in the coming months.

Specifically, Goldman Sachs has selected a group of "buy-rated Chinese listed companies" that it believes are well-positioned in sectors benefiting from positive policy stimuli, especially in the areas of platform economy, consumer services, electric vehicle supply chain, renewable energy, high-tech manufacturing, new infrastructure, and high-quality stocks in the late stage of the real estate market cycle. At the same time, both Goldman Sachs and Morgan Stanley emphasized in their research reports that although the performance of Chinese companies' stock prices this week is encouraging, it is necessary for relevant policies to be quickly implemented and put into practice in order to maintain the "tactical rebound" of the market.

On Friday, the Hang Seng Tech Index rose by 2.9%, a 23% increase since late May, officially entering a technical bull market. The Hang Seng Index rose by 4.4% this week, reaching a six-week high since June 16.

Data from the Shanghai-Hong Kong Stock Connect showed that foreign investors purchased 34.5 billion yuan ($4.8 billion) worth of domestic stocks this week, marking the largest five-day capital inflow since January. Mainland funds also net purchased 8.3 billion Hong Kong dollars ($1.1 billion) worth of shares of Hong Kong-listed companies during the same period.

This week, BlackRock, one of the world's largest asset management groups, released its mid-year investment outlook, which continues to be optimistic about China, echoing its previous statement that "global investors have underestimated the risks of underweighting China."

According to China Fund News, Landry Signé, Chief Investment Officer of BlackRock Funds, stated this week that his view on the global stock market can be summarized as "rising in the East and falling in the West." In particular, Chinese companies have cost advantages and technological strengths in industries such as wind power, photovoltaics, and energy storage, which BlackRock believes have strong investment value.

Song Yu, Chief China Economist at BlackRock, also stated that considering the comprehensive impact of financial, economic fundamentals, and policies, the continuous depreciation of the renminbi exchange rate has most likely come to an end, and the next step may see fluctuations, but there won't be any particularly significant depreciation expectations.

Lucy Liu, Portfolio Manager of BlackRock's Global Emerging Market Equity, stated two weeks ago that there are still "many bottom-up opportunities" in the Chinese stock market. The technology industry, especially some companies related to artificial intelligence, are expected to continue to outperform the market. There are also opportunities in areas related to consumption recovery and industrial automation.

Furthermore, some analysts believe that in addition to the "favorable wind" of China's own policies, Chinese concept stocks may also benefit from market expectations that the European and American central banks will pause their tightening policies in September. Currently, bullish traders have returned to the market, driving a general rise in risk assets.