According to an analysis by investment bank Goldman Sachs (GS), hedge funds are buying beaten down Chinese stocks at the fastest pace in more than five years.
In a note to clients, Goldman Sachs said that net buying of Chinese equities among hedge funds between Jan. 23 and 25 marked the biggest three-day purchases since 2018.
The surge in hedge fund buying coincides with the Chinese government in Beijing ramping up stimulus measures to lift confidence in the world’s second-largest economy, which has been hurt by a crisis in the property sector and weak economic growth.
The stock market in Hong Kong has risen 6% since Beijing announced its intention to stimulate the Chinese economy, while Shanghai’s main stock index has gained more than 3%.
Sentiment towards China among hedge funds has turned around sharply. Previously, hedge funds had mostly bearish bets against Chinese stocks, betting that prices would fall.
Hedge funds mostly piled into U.S.-listed shares of Chinese companies, such as Alibaba (BABA) and Baidu (BIDU), as a way of buying into Chinese equity markets.
Specifically, hedge funds put nearly $12 billion U.S. into Chinese equities in recent days, the largest inflow since 2015 and the second largest ever, reports Goldman Sachs.
Still, even with the surge in buying over recent days, overall positioning in Chinese equities remains at five-year lows for both hedge funds and mutual funds, noted Goldman Sachs.
The stock of Goldman Sachs has increased 6% in the last 12 months to trade at $377.79 U.S. per share.