Invesco Research: Sovereign wealth funds' interest in China is rising again, fearing to miss the next wave of innovation

A recent survey targeting global sovereign wealth funds shows that driven by the fear of missing out on the next wave of technological innovation, these largest global investors are once again turning their attention to China.

According to the annual report released by Invesco Asset Management, the proportion of sovereign wealth funds viewing China as a high or medium allocation priority over the next five years has jumped from 44% last year to 59%. This survey, conducted in the first quarter of 2025, covered 83 sovereign wealth funds and 58 central banks, which collectively manage approximately $27 trillion in assets.

The survey pointed out that attractive local market returns are the primary factor driving future capital flows. Rod Ringrow, head of institutional business at Invesco, stated, “There is a bit of a ‘fear-of-missing-out’ effect here, similar to the tech boom in Silicon Valley a few years ago,” adding:

“The prevailing view in the sovereign fund space is that Chinese technology will be globally competitive, and they want to ensure they are involved now.”

Strategic Shift: Focusing on Specific Technology Tracks

Invesco noted that the renewed interest of sovereign funds in China represents a more cautious and focused strategy. The report states that this reflects a “more thoughtful, industry-specific investment approach aimed at sectors that are expected to achieve global leadership with momentum in the Chinese market and strategic policy support.”

The favored sectors include semiconductors, cloud computing, artificial intelligence, electric vehicles, and renewable energy infrastructure. Invesco cited the opinion of a Middle Eastern sovereign wealth fund that China will dominate the solar, wind, electric vehicle, and battery markets in the coming decades. Another respondent from the Asia-Pacific region believes that given the resources and policy support invested by the Chinese government, it is only a matter of time before China catches up with the U.S. in semiconductors, cloud computing, and artificial intelligence.

Survey data shows that the trend of optimism towards China is widespread, particularly prominent among funds in Asia and North America. The data indicates that among the funds expected to increase their allocation to China over the next five years, 88% are sovereign funds from Asia, while the proportion from North America also reached 73%. Rod Ringrow mentioned that some U.S. institutional investors are also part of the bullish camp on China.

This spread of optimism has its market background. So far this year, the Hang Seng China Enterprises Index, which measures Chinese mainland stocks listed in Hong Kong, has risen by about 20%, and the progress made by the AI startup DeepSeek at the beginning of the year has ignited investment enthusiasm in tech stocks. Currently, this optimism has spread to other sectors such as robotics, biotechnology, and electric vehicles. Invesco's survey found that about 78% of respondents expect China's technology and innovation sectors to be globally competitive.

Global Asset Rebalancing: Reducing U.S. Treasury Holdings and Increasing Gold

The increased interest of sovereign funds in Chinese tech assets is also accompanied by adjustments in their global asset allocation strategies, particularly a shift in attitude towards U.S. dollar assets The report points out that due to concerns about fiscal sustainability and policy volatility, sovereign funds are reducing their holdings of U.S. long-term Treasury bonds and reassessing passive index strategies focused on U.S. stocks.

At the same time, central banks are working to establish larger and more diversified reserve assets to withstand market fluctuations. The report states that while the U.S. dollar remains dominant, gold's role as a defensive asset is increasingly strengthening. Rod Ringrow stated, "Central banks continue to buy gold largely out of concern for the 'weaponization' of assets." He believes that gold not only hedges against inflation but is also difficult for third parties to freeze, making it a core component of central bank reserves