Chinese stocks: 90% of US investors set to increase exposure, Morgan Stanley says

US investors are showing the highest level of interest in Chinese stocks in five years, and their return to China’s market is just “starting” despite some lingering reasons for caution, according to Morgan Stanley.

More than 90 per cent of investors had “explicit willingness to increase their exposure to China’s market, the highest level since early 2021 when China’s equity market peaked”, the US bank said in a report on Thursday. They were especially interested in areas such as humanoid robotics and biotech, as well as new consumer companies, said the report, which was based on discussions during a marketing trip.

Moreover, US investors’ interest went beyond US-listed Chinese equities to include the onshore market, Morgan Stanley said, adding that some quant funds and macro funds were increasing their exposure to China through A-share exchange-traded funds and index-future products.

The reversal of a multi-year retreat was due to factors including China’s leadership in specific sectors, its efforts to nurture the equity market and stabilise the economy, an improving liquidity situation and rising demand for diversification from US assets, Morgan Stanley said.

“Despite the high level of interest shared by them, US investors’ relocation back to China is only just starting,” said Laura Wang, chief China equity strategist at Morgan Stanley, adding that more capital inflows were likely to come.

Because many investors had stopped investing in the China market over the past several years, they needed time to do their homework at an individual stock level, and allocations from those with global and emerging-market mandates were likely to increase “more meaningfully” over time, the report said.