Good news is here! Buying spree!

Foreign capital is fully reassessing Chinese assets.

Bank of America pointed out in its latest Global Fund Manager Monthly Survey that the reasons for buying Chinese stocks (especially technology stocks) are improving, driven by favorable factors such as the rise of DeepSeek, which may be enough to attract long-term investors back. Bank of America believes that the perception of Chinese stocks is shifting from "tradable" to "investable," marking a significant change in mindset and capital flow.

Today, A-shares rebounded with fluctuations, with the ChiNext Index rising over 1% to lead the two markets, and more than 4,100 stocks in Shanghai, Shenzhen, and Beijing turning positive. The morning trading volume reached 1.07 trillion yuan. A-shares in sectors such as robotics, superconductors, semiconductor chips, and new energy vehicles led the gains. In the Hong Kong market, as of the midday close, the Hang Seng Index fell 0.28%, while the Hang Seng TECH Index rose 0.37%.

It is noteworthy that as of today's midday close, the Hang Seng Index has accumulated a year-to-date increase of 14%, making it one of the best-performing major markets globally. Among them, technology stocks have performed even more impressively, with the Hang Seng TECH Index showing a year-to-date increase of over 26%.

Meanwhile, a large amount of capital is flowing into Hong Kong technology stocks. According to Wind data, on February 18, southbound funds net bought Hong Kong stocks amounting to 22.423 billion Hong Kong dollars, the largest single-day purchase volume since early 2021.

Additionally, on a global scale, stocks have become the most favored asset class among investors, who are showing the strongest "risk-taking" willingness in 15 years. According to Bank of America's survey, fund managers' cash levels have fallen to the lowest since 2010. Bank of America strategist Michael Hartnett stated that investors are now "long on stocks, short on everything else."

Significant Shift

Bank of America pointed out in its latest Global Fund Manager Monthly Survey that the reasons for buying Chinese stocks (especially technology stocks) are improving, driven by favorable factors such as the rise of artificial intelligence startup DeepSeek, which may be enough to attract long-term investors back.

Bank of America noted that the perception of Chinese stocks is shifting from "tradable" to "investable," marking a significant change in mindset and capital flow. This is because large foreign investors typically spend months or even years observing and often only hold small short-term positions.

On February 18, Eastern Time, Bank of America strategist Michael Hartnett's team reported that 18% of respondents in the February survey predicted that the Hang Seng Index would be the best-performing globally by 2025, ranking second alongside the Nasdaq. This is the first time the Hang Seng Index has entered the top three since it first appeared in the monthly survey last November.

It is reported that Bank of America conducted a survey of fund managers from 168 asset management companies globally between February 7 and 13, managing a total of 401 billion dollars (approximately 2.92 trillion yuan).

It is worth mentioning that global funds' confidence in the Hong Kong stock market has significantly increased, even reaching the same level as the Nasdaq Composite Index Back to the market level, as of the close on February 19, the Hang Seng Index has achieved a year-to-date increase of 14%, comparable to Germany's DAX Index, making it the best-performing major market globally. Among them, technology stocks have performed even more impressively, with the Hang Seng TECH Index showing a year-to-date increase of over 26%.

Bank of America analysts wrote in a report: "Many investors we interviewed still viewed China as a 'trading market' last year—quick money coming and going, chasing trading rebounds, while global long-term capital remained skeptical and participated very little. However, it is encouraging that we now believe the fundamental investment thesis in China has been improving."

Bank of America also specifically mentioned long-term favorable factors such as rising dividends and the investment flows from insurance companies.

It is worth noting that some Wall Street analysts pointed out that investors are focusing on the so-called "Top Ten" Chinese technology stocks, even considering them as alternatives to the "Seven Giants" of American technology.

Jeff Weniger, Head of Equity Strategy at WisdomTree Asset Management, stated on social media: "China's 'Top Ten Tech Giants' can be said to have overshadowed the US 'Seven Giants.' This started six months ago, but few people noticed."

The "Top Ten Tech Giants" mentioned by Jeff Weniger include e-commerce giants Alibaba and JD.com, automakers Geely and BYD, tech group Xiaomi, internet giants Tencent, NetEase, Baidu, Meituan, and chip manufacturer SMIC.

Buying Frenzy

Meanwhile, mainland Chinese funds are also aggressively buying Hong Kong tech stocks.

According to Wind data, on February 18, southbound funds net purchased HKD 22.423 billion worth of Hong Kong stocks. This figure is the largest single-day purchase volume since early 2021.

Analysts believe this wave of funds is mainly driven by the tech stock rally triggered by AI company DeepSeek. On that day, the Hang Seng TECH Index rose by 2.5%, poised for a sixth consecutive week of gains.

In terms of individual stocks, several Hong Kong stocks saw significant net purchases by southbound funds on February 18, including Alibaba with a net purchase of HKD 3.391 billion; Xiaomi Group with a net purchase of HKD 600 million; Tencent Holdings with a net purchase of HKD 507 million; and China Mobile with a net purchase of HKD 389 million.

Looking at the longer term, as of February 18, the cumulative net purchase amount of Hong Kong stocks by southbound funds has reached HKD 185.385 billion year-to-date.

With a large influx of funds into the Hong Kong stock market, the premium rate between A-shares and H-shares has dropped to about 34%.

Goldman Sachs strategists wrote in their latest report that the emergence of DeepSeek and other Chinese AI models has changed the narrative around Chinese technology. The improvement in growth prospects and potential confidence boost could increase the fair value of Chinese stocks by 15%-20% and potentially bring in over USD 200 billion in portfolio fund inflows Changjiang Securities pointed out that against the backdrop of the explosion of the "AI+" industrial chain, Hong Kong stocks are transitioning from a "dividend bull" to an "AI bull." Over the past three years, the valuations of Hong Kong technology and internet companies have been significantly affected by the macro environment. As the AI landscape changes, Hong Kong technology companies with numerous AI applications and underlying technologies may welcome a "second spring" in their industrial lifecycle, transforming from value stocks back into growth stocks. While performance realization may take some time, the reconstruction of valuations has already begun.

Overall Bullish on Stocks

Bank of America’s survey also shows that global stocks have become the most favored asset class among investors, with investors displaying the strongest "risk-taking" willingness in 15 years.

The survey indicates that fund managers' cash levels have fallen to the lowest since 2010. 34% of respondents expect global stocks to be the best-performing asset in 2025; another 11% of respondents indicated that they are underweight in bonds.

Hartnett stated in the report that investors are now "long on stocks, short on everything else," and this bullish sentiment is supported by expectations of strong economic growth this year and a decline in U.S. interest rates.

Due to optimism about artificial intelligence and signs that a U.S. economic recession has been avoided, global stock markets have risen more than 60% since the lows at the end of 2022.

Bank of America noted that this rise has been primarily driven by U.S. tech stocks, and as investors shift towards European stock markets, confidence in the so-called American exceptionalism (where investors mainly bet on U.S. financial markets) has also wavered.

The survey shows that investors generally expect the Euro Stoxx 50 index to outperform the Nasdaq 100 index, which has a high proportion of U.S. tech stocks, in 2025. Specifically, 22% of respondents believe that the Euro Stoxx 50 index will be the "best performer" in 2025.

Additionally, overall investor bullish sentiment (measured by cash levels, stock allocation, and global growth expectations) rose from 6.1 to 6.4 but remains below the "bubble" level of December 2024.

Finally, the survey also revealed that expectations for a global economic recession have fallen to the lowest level in three years, with about 77% of fund managers expecting the Federal Reserve to continue cutting interest rates in 2025.

Source: Securities China, Proofread by: Liu Xingying