Global capital is accelerating its return to China’s capital markets. The latest data shows that in August, China’s stock and bond markets collectively attracted a net inflow of $39 billion in foreign capital, accounting for more than 80% of the total inflow into emerging markets that month. Among them, hedge funds made the fastest net purchases of Chinese stocks in seven weeks, making China the largest market for net hedge fund purchases globally. From international investment banks’ “overweight” ratings to precise allocations in industry tracks, foreign capital is demonstrating long-term confidence in the Chinese market with real money investments.
Institutional collective “buoyant” stance: From rating upgrades to capital inflow
International financial institutions have recently released a series of optimistic signals. Goldman Sachs maintained a “buy” stance on Chinese stocks, Standard Chartered continued to give Chinese stocks an “overweight” rating in its “Outlook for Global Markets in the Second Half of 2025,” and S&P Global maintained China’s sovereign credit rating at “A+” with a “stable” outlook. “The response to external trade environment exceeded expectations, and domestic steady-growth policies are continuing to exert force, especially measures like newborn subsidies, which are releasing positive signals. Policy support Force is expected to further increase in the fourth quarter,” explained Zheng Zifeng, Chief Investment Director of North Asia at Standard Chartered, on the rationale for the allocation.
The actions at the capital level are more direct. Data from the State Administration of Foreign Exchange shows that in the first half of 2025, foreign capital net increased its holdings in domestic stocks and funds by $10.1 billion, with the net increase surging to $18.8 billion in May and June; as of early September, foreign capital’s holdings in A-share market value reached RMB 2.5 trillion, an increase of 8% from the end of last year. Last week, both Northbound capital and active foreign capital realized net inflows, with active foreign capital marking the first inflow since October last year. Morgan Stanley further noted that U.S. investors’ interest in Chinese stocks has reached a five-year high, “and the return process has just begun.”
Layout focuses on “new tracks”: technology and consumption become core strongholds
The return of foreign capital is not blind but targets the core areas of China’s economic transformation and upgrading. QFII holdings data show that in the second quarter, 374 individual stocks were newly added and 157 were increased in holdings, with a focus on sectors such as chemical industry, pharmaceuticals and biotechnology, mechanical equipment, and power equipment. “These areas not only have short-term growth potential but also possess long-term international competitiveness. The steady inflow of capital highlights the long-term nature of the investment,” said Tony Wan, a professional committee member of the Hong Kong Securities Institute.
Technological innovation has become a high-frequency term in foreign capital’s research. James Xing, chief economist of China at Morgan Stanley, revealed that institutional research is primarily concentrated in areas such as domestic substitution of AI computing power, innovative drugs, humanoid robots, and intelligent driving. “On-site inspections of industrial chains have become a must for investment research, from Beijing, Shanghai, Guangzhou, and Shenzhen to second and third-tier cities.” The consumer sector is also highly favored. HSBC believes that the rise of Generation Z’s consumer power and the continuation of consumption promotion policies will create structural opportunities for new consumer tracks. So far this year, 680 foreign capital institutions have completed research on A-share companies over 5,620 times, with multiple institutions tracking key targets for 1 to 2 years, with research results directly translated into heavy stock Configuration.
Policy builds nests to attract birds: openness and services as dual drivers
The backdrop of foreign capital inflow is the institutional support for the continuous expansion and opening-up of China’s capital market. The “Action Plan for Stabilizing Foreign Investment” in 2025 clearly cancels foreign investment access restrictions in the manufacturing sector, expands pilot programs in fields such as telecommunications and healthcare, optimizes foreign investment merger and acquisition rules, and lowers cross-border stock exchange thresholds, providing operational guidance for foreign strategic investments in listed companies. At the service support level, policies have been optimized across various aspects, including personnel entry and exit, foreign exchange management, and government procurement. Notably, foreign-invested companies are now allowed to use domestic loans for equity investments, further facilitating capital operations.
“The valuation advantage of Chinese assets is becoming increasingly significant,” said Yang Delong, chief economist of Qianhai Open-Source Fund. “The current P/E ratio of the CSI 300 Index is 14.31, and that of the Hang Seng Index is 11.97, significantly lower than the 30.37 of the S&P 500 Index. ‘In the process of global capital rebalancing, the valuation Depression effect of A-share and Hong Kong stocks continues to release.’ From policy dividends to industrial potential, from valuation safety margins to in-depth research empowerment, multiple factors are driving the shift of ‘buying China’ from a short-term trading behavior to a long-term structural trend.”
