Executive Summary
– Foreign capital inflows into Chinese equities hit a record $46 billion in September 2024, signaling a major shift in global investment strategies.
– Policy reforms initiated on September 24, 2024, sparked a robust market recovery, with key indices like the Hang Seng Tech and CSI 300 outperforming global peers.
– Earnings growth in AI, automation, and tech sectors is driving valuation reratings, with companies like Alibaba and Tencent reporting double-digit profit increases.
– Leading institutions like Goldman Sachs and Morgan Stanley advocate for focused investments in Chinese tech giants and innovation-driven themes.
– The launch of ETFs such as Rayliant-ChinaAMC China Technology Innovation ETF (CNQQ) provides accessible tools for global investors to capitalize on this trend.
Global Investors Pivot to Chinese Equities
The landscape of international capital flows is undergoing a profound transformation, with foreign capital shifts to Chinese assets emerging as a dominant theme in 2024. Chinese equities have delivered standout performance this year, outpacing major global indices. By October 22, the Hang Seng Tech Index surged 32.56%, the Wind China Concept Stock 100 Index climbed 31.72%, the Hang Seng Index advanced 28.56%, and the Wind All-Share Index rose 24.11%. These gains eclipsed returns from the Nasdaq and S&P 500, highlighting renewed confidence in China’s markets.
Data from Morgan Stanley reveals that foreign inflows into Chinese stocks rebounded to $46 billion in September alone, marking the highest monthly inflow since November 2024. Over the first nine months of 2025, passive foreign funds accumulated net inflows of $180 billion, a 157% increase from the $70 billion recorded in all of 2024. Coupled with the Federal Reserve’s interest rate cuts, which eased global liquidity conditions, Wall Street is now championing a wave of long positions in Chinese tech stocks. This shift underscores a broader reassessment of China’s investment appeal, driven by policy support, technological advancements, and compelling valuations.
Data Highlights and Market Momentum
– September 2024 foreign inflows: $46 billion, the highest in nearly a year.
– Year-to-date passive fund inflows: $180 billion, up 157% from 2024.
– Key outperforming indices: Hang Seng Tech (+32.56%), Wind China Concept 100 (+31.72%).
– Federal Reserve policy: Rate cuts enhancing global liquidity and risk appetite.
The Catalysts Behind the Capital Influx
A series of pivotal developments have fueled the foreign capital shifts to Chinese assets, reversing years of lackluster performance. The turning point arrived on September 24, 2024, when Chinese authorities rolled out a comprehensive package of market-stabilizing and growth-boosting policies. These measures ignited a powerful rally across A-shares and Hong Kong stocks, with the Shanghai Composite Index soaring over 4% in a single day and accumulating gains exceeding 30% within just six trading sessions. Initially, state-owned capital provided a foundational support, followed by increased participation from domestic institutions like mutual funds and insurers, rising retail account openings, and robust foreign buying.
Statistics show that from September 24 to November 15, 2024, northbound capital under the Stock Connect programs recorded net purchases surpassing RMB 2.2 trillion. This not only reversed the net outflows seen earlier in the year but also set a record for the highest net inflow period since the launch of the Shanghai-Hong Kong and Shenzhen-Hong Kong connects. Reports from the Institute of International Finance (IIF) and multiple global investment banks confirmed that global emerging market funds heavily re-entered Hong Kong stocks in October 2024, ending a prolonged phase of outflows. After a brief consolidation, breakthroughs in AI and humanoid robotics in early 2025 reignited interest, particularly in tech assets.
Policy Impact and Institutional Response
– Policy announcement date: September 24, 2024, triggering a historic rally.
– Northbound capital inflows: RMB 2.2 trillion net purchases post-policy.
– IIF data: Global emerging market funds returned to Hong Kong stocks in October 2024.
– Domestic participation: Mutual funds, insurers, and retail investors amplified the uptrend.
Earnings Growth and Technological Breakthroughs
The resilience of Chinese assets is increasingly validated by solid earnings performance, especially in technology and innovation-driven sectors. Mid-2025 financial reports illustrated a broad-based recovery, with A-share listed companies posting positive revenue growth and modest profit expansions. New economy segments, led by artificial intelligence, emerged as primary growth engines, outstripping market averages. For instance, Zhongji Innolight reported a 36.95% year-on-year revenue increase and a 69.4% surge in net profit, while Cambricon Technologies saw revenue explode by 4,347.82% and turned a profit from a prior loss of RMB 530 million. Similarly, NAURA Technology Group achieved a 29.51% revenue growth and a 14.97% rise in net profit.
Hong Kong-listed giants mirrored this momentum with even greater elasticity. Tencent Holdings posted a 14% revenue growth and an 18% increase in net profit, driven by its AI initiatives, while Alibaba Group recorded a 10% revenue rise and a dramatic 76% jump in net profit, bolstered by AI cloud services and investment gains. This synergy between policy support, capital inflows, market appreciation, and earnings delivery has created a virtuous cycle, attracting foreign capital shifts to Chinese assets that prioritize fundamentals and sustainability. The闭环 (closed loop) from the 9/24 policies to capital inflow, market rise, and earnings realization has strengthened investor conviction.
Standout Performers and Sector Insights
– Zhongji Innolight: Revenue up 36.95%, net profit up 69.4%.
– Cambricon Technologies: Revenue surged 4,347.82%, turned profitable.
– Tencent Holdings: AI-driven growth with 14% revenue and 18% profit increases.
– Alibaba Group: AI cloud expansion fueling 10% revenue and 76% profit gains.
Strategic Insights from Global Investment Banks
As markets navigate elevated valuations and recent consolidations, top-tier investment firms are outlining roadmaps for sustained growth. Goldman Sachs chief China equity strategist Liu Jinjin (刘劲津) and team released a report this week asserting that Chinese stocks are entering a slow-bull market phase, with the MSCI China Index poised for 30% upside over the next two years. This projection hinges on 12% trend earnings growth and 5–10% valuation rerating potential. The analysts cited compelling rationale, including demand-side stimuli aligned with China’s new five-year plan, AI’s profit transformation, deep discounts relative to global equities, and potential reallocations worth trillions of dollars.
Morgan Stanley chief China strategist Wang Ying (王滢) echoed cautious optimism, noting that corporate earnings have improved since June 2024, with upbeat revisions across finance, internet, hard tech, pharmaceuticals, and advanced manufacturing. She emphasized that the migration from bonds to equities remains in early stages, and foreign positioning in Chinese stocks is still low compared to historical peaks. For instance, foreign holdings of A-shares totaled approximately RMB 2.57 trillion as of early September, representing just 2% of total market capitalization—well below the 4.3% peak in December 2021. This suggests ample room for further foreign capital shifts to Chinese assets.
Key Recommendations and Allocation Themes
– Goldman Sachs: Focus on China’s top ten giants, AI themes, global leaders, cyclical beneficiaries, and A-share small caps.
– Morgan Stanley: Prioritize AI, automation, robotics, biotech, and high-end manufacturing.
– Current foreign A-share holdings: 2% of total市值 (market cap), below the 4.3% historical high.
– Implication: Significant potential for increased allocations as confidence builds.
Valuation Appeal and Investment Vehicles
Despite notable rallies, Chinese tech assets remain undervalued relative to global counterparts, presenting compelling opportunities. As of October 22, the Hang Seng Tech Index traded at a trailing P/E ratio of 22.76 times, situating it in the 28.94 percentile since its inception—meaning valuations are lower than over 71% of historical levels. This contrasts sharply with the Nasdaq Index’s P/E of approximately 43.16 times and the S&P 500’s 29.26 times. The discount is attracting prominent investors; for example, Cathie Wood’s Ark Investment bought Alibaba shares for the first time in four years, while Michael Burry, famed from The Big Short, acquired Alibaba call options. Invesco’s flagship emerging market fund also added significant positions in JD.com and Alibaba.
Innovative products like the Rayliant-ChinaAMC China Technology Innovation ETF (CNQQ), launched on Nasdaq on September 26, are capitalizing on this momentum. Rayliant Group founder Jason Hsu (许仲翔) described the timing as a DeepSeek moment, where global investors recognize China’s tech sector evolution beyond hardware manufacturing to leadership in AI and innovation. CNQQ’s portfolio includes heavyweights like Alibaba, Tencent, Xiaomi, CATL, and BYD, offering diversified exposure to China’s tech ecosystem. For domestic and international investors alike, this ETF enables round-the-clock monitoring of Chinese tech stocks, complementing daytime tracking of domestic indices with after-hours visibility.
Comparative Valuation and Product Innovation
– Hang Seng Tech P/E: 22.76x, at 28.94% historical percentile.
– Nasdaq P/E: ~43.16x, S&P 500 P/E: ~29.26x.
– CNQQ ETF: Includes Alibaba, Tencent, CATL, BYD, Zhongji Innolight, Cambricon, NAURA.
– Investor actions: Ark Investment, Michael Burry, and Invesco increasing Chinese tech exposure.
Navigating the Strategic Window for Chinese Assets
The convergence of supportive policies, technological prowess, earnings delivery, and investor sentiment has created a strategic window for capitalizing on Chinese assets. Wall Street’s perspective is evolving from cautious观望 (watchfulness) to structural bullishness, with firms no longer viewing Chinese equities merely as cheap value plays but as sources of growth certainty. Although macroeconomic and geopolitical challenges persist, China’s core tech assets are becoming indispensable components of global portfolios. The foreign capital shifts to Chinese assets are likely to accelerate as more data confirms this positive trajectory.
For investors, the current environment demands a proactive approach. Leveraging tools like the CNQQ ETF can provide efficient access to high-growth segments, while adhering to strategies highlighted by leading banks—such as concentrating on AI, automation, and blue-chip innovators—can enhance returns. The ongoing recalibration of global allocations toward Chinese markets represents not just a tactical adjustment but a long-term strategic imperative. As global liquidity conditions remain favorable and China’ innovation narrative strengthens, the window to act is now.
Call to Action and Forward Guidance
– Monitor policy developments and earnings reports for timely entry points.
– Consider ETFs like CNQQ for diversified, liquid exposure to Chinese tech.
– Align portfolios with themes endorsed by Goldman Sachs and Morgan Stanley.
– Stay informed on valuation metrics and foreign inflow trends to optimize timing.