Hedge fund giants are about to increase their allocation to Chinese stocks? After onshore funds achieved a 14% return, Bridgewater bets on policy support and valuation expansion

According to the Zhitong Finance APP, with the help of government stimulus policies targeting the tariff measures of the Trump administration, Bridgewater Associates, the world's largest hedge fund known as the "hedge fund king," has become more optimistic about the prospects of the Chinese stock market after its onshore China fund reported a 14% investment return growth in the first half of this year.

It is understood that Bridgewater's onshore China subsidiary stated in a letter to investors in the second quarter that as of June 30, its view on the Chinese stock market has been "moderately increased" compared to the "All Weather" strategy allocation. The core reasons are policy support, the AI investment boom sweeping the Chinese market, and the relatively low valuation of the Chinese stock market. Bridgewater declined to comment officially.

The letter stated that after concerns about the trade war led to a significant decline in global stock markets, the Chinese government decisively intervened in April to stabilize the economy and the Chinese capital market. This has driven a significant rebound in Chinese stocks and bond assets, while gold prices have also continued to strengthen against the backdrop of geopolitical uncertainty.

Even after a wave of significant gains, the valuation of the Chinese stock market (including A-shares and Hong Kong stocks) remains lower than that of developed markets such as the US stock market, making Chinese stocks "attractive for investment" from a risk-return perspective, Bridgewater pointed out in the letter to investors.

"Looking ahead to the future of the Chinese stock market, we expect the supportive policy stance to continue, providing important support for the overall risk asset prices," Bridgewater wrote in the letter. "Therefore, we are continuously increasing our allocation to a basket of risk assets."

According to investor letters from the past two quarters, compared to the "slight adjustment" at the end of March, Bridgewater's view on short-term bonds has been "moderately adjusted upward." Its stance on commodities has shifted from "neutral" three months ago to "slightly reduced."

Focusing on multi-asset diversification, Bridgewater's "All Weather Plus" strategy has outperformed most domestic investment peers in recent years, helping Bridgewater's onshore China assets grow by about 40% last year to over 55 billion yuan (approximately 7.7 billion USD). The onshore fund's investment return in the second quarter was approximately 5.8%, expanding the first half return to 13.6%.

Informed sources revealed that the actively managed investment strategy, which dynamically adjusts based on team views, contributed about 2.3% to returns in the second quarter, adding to the 3% contribution in the first quarter.

Statistics from Shenzhen Paipai Network show that domestic hedge funds using multi-asset strategies had an average return of 7.3% in the first half of the year. The 51 hedge funds tracked by the website, each with a scale exceeding 10 billion yuan, had an average return of 11%. During the same period, the CSI 300 Index performed flat, while under the unprecedented Chinese AI investment boom, the stock prices of major tech giants like Alibaba and Tencent continued to rise, driving the Hang Seng Index, primarily composed of Chinese stocks, up over 20%. The Hang Seng TECH Index, heavily weighted by Alibaba and Tencent, has risen 18% year-to-date (with the highest increase exceeding 30% at one point), significantly outperforming the S&P 500 Index and the CSI 300 Index Worried about missing the "next Silicon Valley"! Sovereign wealth may surge to China, driving the Chinese stock market towards a prosperous bull market

According to the latest "Global Sovereign Asset Management Study" released by American asset management giant Invesco Ltd., global sovereign asset management institutions are significantly increasing their interest in allocating to Chinese assets. The vast majority of funds expect to increase their investments, leveraging the asset growth driven by Chinese technology to seize historic technological transformation opportunities, and are inclined to reduce their holdings of U.S. long-term Treasury bonds to provide funding support.

"Sovereign wealth investors managing $27 trillion in assets are increasingly optimistic about China's technology sector because they do not want to miss the next wave of innovation." This is the conclusion drawn from Invesco's annual survey.

It is understood that in Invesco's survey of 83 sovereign wealth funds and 58 central banks conducted for the first quarter of 2025, 59% of respondents indicated that they view China as a high or medium priority allocation target over the next five years, significantly higher than last year's 44%.

"There is a bullish investment sentiment driven by a 'fear of missing out' (FOMO), and the trend of China's technological prosperity is akin to the next Silicon Valley," said Rod Ringrow, head of Invesco's institutional division. "Sovereign assets generally believe that Chinese tech companies will be highly competitive globally in the future, and they want to ensure they are involved now."

Overall, Invesco's survey shows that since the emergence of DeepSeek and Alibaba's launch of a low-cost, high-performance open-source AI large model that shocked Silicon Valley and Wall Street, sovereign wealth funds managing approximately $27 trillion in assets are increasingly optimistic about China's technology sector.

This optimistic sentiment driven by the "AI application wave" brought about by DeepSeek has spread to other technology-oriented industries such as humanoid robots, biotechnology, advanced manufacturing, and electric vehicles.

Invesco's survey indicates that about 78% of surveyed global sovereign asset management institutions expect China's technology and innovation-driven industries to rank among the top global competitive sectors.

The underperforming CSI 300 index is expected to enter an upward trajectory

The unprecedented investment boom in Chinese artificial intelligence led by DeepSeek has continuously boosted Chinese tech stocks. Major Chinese tech companies (such as Alibaba and Tencent) possess the capability to develop disruptive application-level tech products covering a population of 1.4 billion, and both enterprise and personal consumer acceptance of new AI technologies are steadily increasing.

For the Chinese stock market—namely the Hong Kong and A-share markets—the epoch-making "ultra-low-cost AI large model" launched by DeepSeek has driven large models to deeply penetrate various industries in China. Additionally, Alibaba's strong performance and the ambitious "super AI blueprint" it has showcased have become an unprecedented "bull market catalyst" for global investors to reassess Chinese assets, especially as these investors have grown increasingly concerned about the soaring valuations of U.S. tech stocks Goldman Sachs' research report shows that even after a significant rise, the average valuation of China's "Top Ten Private Enterprises" at approximately 13.9x the 12-month expected price-to-earnings ratio has only a 22% valuation premium over the MSCI China Index, which is far below the historical average and significantly lower than the nearly 50% valuation premium level of the "Seven Giants of the U.S. Stock Market."

According to Goldman Sachs, a major Wall Street firm, the CSI 300 Index, which has underperformed the Hang Seng Index and the S&P 500 Index in the first half of this year, is expected to rise significantly.

Goldman Sachs recently reaffirmed its bullish stance on the Chinese stock market, predicting that by the end of the year, the CSI 300 Index will rise by more than 10% to 4,600 points. As of Tuesday's close, the CSI 300 Index was at 4,019 points.

As a non-strict benchmark, the CSI 300 Index, which covers almost all of China's core assets, is compared by some institutions to the S&P 500 Index, which is considered the core asset of the United States. In terms of scale, the CSI 300 Index, along with the S&P 500 Index, the STOXX Europe 600 Index, and the Nikkei 225 Index, constitutes what is known as "global core assets," and the scale and influence of the CSI 300 Index are second only to the S&P 500 Index.

Despite investors remaining cautious and the first half of the year showing mediocre performance, Goldman Sachs expects a stronger performance in the Chinese stock market in the second half of 2025, supported by factors including: an AI-driven bullish trend in the Chinese stock market, expectations of policy easing, improvements in corporate earnings, and stabilization of macroeconomic indicators. Additionally, Goldman Sachs maintains an "overweight" rating on both Chinese A-shares and overseas-listed Chinese stocks, with the core reason being attractive valuations and the expectation that funds will flow back in as market sentiment improves