Hedge fund giant is about to increase allocation to Chinese stocks? Onshore funds achieve 14% returns, Bridgewater bets on policy support and valuation expansion.

Under the government stimulus policy in response to the Trump administration's tariff measures, Bridgewater Associates' onshore China fund saw a 14% increase in investment returns in the first half of this year. Subsequently, the world's largest hedge fund, Bridgewater Associates, known as the "hedge fund king," became more optimistic about the prospects of the Chinese stock market. According to a letter from Bridgewater's onshore China subsidiary to investors in the second quarter, as of June 30, their view of the Chinese stock market compared to the "All Weather" strategy was "moderately increased", with the core reasons being policy support, the AI investment trend sweeping the Chinese market, and the relatively low valuation of the Chinese stock market. Bridgewater officials declined to comment. The letter stated that after trade war concerns caused a sharp decline in global stock markets, the Chinese government decisively acted in April to stabilize the economy and the Chinese capital markets. This led to a significant rebound in Chinese stocks and bond assets, and amidst geopolitical uncertainty, the price of gold continued to rise. Even after a wave of gains, the valuation of the Chinese stock market (including A-shares and Hong Kong stocks) remains lower than that of developed countries like the US, making Chinese stocks "attractive from an investment perspective", as stated in the letter to investors from Bridgewater. "Looking ahead to the future of the Chinese stock market, we expect the supportive policy stance to continue, providing an important bottom for the overall risk asset prices." Bridgewater wrote in the letter. "Therefore, we are continuing to increase the allocation to a basket of risk assets." According to investor letters from the past two quarters, the view on short-term bonds was "moderately increased" compared to the "slightly raised" at the end of March. Their position on commodities was changed from "neutral" three months ago to "slightly reduced". With a focus on the diversified multi-asset Bridgewater "All Weather Plus" strategy, which has outperformed most domestic peers in recent years, Bridgewater's onshore China assets grew by about 40% last year to over 55 billion RMB (equivalent to about 7.7 billion US dollars). The strategy's investment return in the second quarter was approximately 5.8%, greatly expanding the first-half return to 13.6%. Insiders revealed that the actively managed investment strategy, which is dynamically adjusted based on team views, contributed approximately 2.3% return in the second quarter, adding to the 3% contribution in the first quarter. According to private placement statistics from Shenzhen Paipai.com, hedge funds using a multi-asset strategy in China had an average return of 7.3% in the first half of the year. The average return for 51 hedge funds tracked by the website with assets over 10 billion RMB was 11%. During the same period, the Shanghai-Shenzhen 300 Index performed flat, while the unprecedented Chinese AI investment boom drove the prices of high-weighted technology giants like Alibaba and Tencent to continuously rise, pushing the Hang Seng Index, mainly comprised of Chinese stocks, up by over 20%. Alibaba and Tencent, with high weightings in the Hang Seng Technology Index, have risen by 18% so far this year (at one point exceeding 30%), greatly outperforming the S&P 500 and Shanghai-Shenzhen 300 Index. Fear of missing out on the "next Silicon Valley"! Sovereign wealth funds may flood into China, driving the Chinese stock market towards a prosperous bull market. According to the latest "Global Sovereign Asset Management Research" released by the US asset management giant Invesco Ltd., global sovereign wealth management institutions have shown a significant increase in interest in allocating assets to China, with the majority of funds planning to increase investments to seize the historic opportunity brought by the asset surge driven by Chinese technology and innovation, and showing a preference to reduce the size of long-term US Treasury holdings to provide financial support. "Sovereign wealth investors managing $27 trillion in assets are increasingly bullish on the Chinese technology industry, as they do not want to miss the next wave of innovation." This is the conclusion drawn from Invesco Asset Management's annual survey. It is understood that in the first quarter of 2025, in a survey of 83 sovereign wealth funds and 58 central banks conducted by Invesco, 59% of respondents stated that they would consider China as a high-priority or medium-priority allocation target in the next 5 years, far above last year's 44%. "There is a fear of missing out (FOMO) bullish investment sentiment here, as the thriving trend of Chinese technology development resembles the next Silicon Valley." said Rod Ringrow, director of Invesco's institutional department. "Sovereign assets generally believe that Chinese technology companies will be highly competitive globally in the future, and they want to ensure they are involved now." Overall, Invesco's survey shows that sovereign wealth funds managing $27 trillion in assets are increasingly bullish on the Chinese technology industry, driven by the optimistic sentiment on AI applications brought by DeepSeek and Alibaba's launch of open-source AI large models with low cost and high performance that shook Silicon Valley and Wall Street. This sentiment has also spread to other technology-focused industries such as humanoid Siasun Robot & Automation, biotechnology, advanced manufacturing, and electric vehicles. The survey by Invesco also shows that about 78% of global sovereign asset management institutions surveyed believe that China's technology and innovation-driven industries will enter the ranks of global competitiveness. The Shanghai-Shenzhen 300 Index, which has lagged behind Hong Kong stocks, is expected to enter an upward trajectory. The unprecedented investment boom in Chinese artificial intelligence led by DeepSeek continues to boost Chinese technology stocks, as large Chinese technology companies like Alibaba and Tencent possess the strength to develop revolutionary application-level technology products that cover a population of 1.4 billion, and the acceptance of new AI technology is increasing both on the corporate and consumer side. For the Chinese stock market - including the Hong Kong and A-share markets, the groundbreaking "low-cost AI large models" introduced by DeepSeek has driven the deep penetration of large models into various industries in China, and Alibaba's strong performance and Alibaba's ambitious "artificial intelligence super blueprint" have become unprecedented catalysts for re-evaluating Chinese assets among global investors who were already concerned about the high valuation of US technology stocks. According to a report by Goldman Sachs, even after a significant increase, the average valuation of the "top ten private giants" in China is about 13.9x the 12-month forward price-to-earnings ratio, with only a 22% valuation premium compared to the MSCI China Index, far below the historical average, and significantly lower than the nearly 50% valuation premium level of the "top seven US giants." In the eyes of the Wall Street major bank Goldman Sachs, the Shanghai-Shenzhen 300 Index, which significantly lagged behind the Hang Seng Index and the S&P 500 Index in the first half of this year, is expected to see a significant increase. Goldman Sachs recently reaffirmed its bullish stance on the Chinese stock market, expecting the Shanghai-Shenzhen 300 Index to rise by more than 10% to 4600 points by the end of the year. As of the Tuesday closing, the Shanghai-Shenzhen 300 Index closed at 4019 points. As a non-strict benchmark, the Shanghai-Shenzhen 300 Index, which covers almost all core assets in China, is compared by some institutions to the US core assets represented by the S&P 500 Index. The Shanghai-Shenzhen 300 Index, with a similar size and impact to the S&P 500 Index, the Euro Stoxx 600 Index, and the Nikkei 225 Index, collectively constitute the so-called "global core assets," and the scale and influence of the Shanghai-Shenzhen 300 Index are second only to the S&P 500 Index. Although investors remain cautious and the performance in the first half of the year was mediocre, Goldman Sachs expects a stronger performance for the Chinese stock market in the second half of 2025, supported by factors including the bullish trend in the AI-driven Chinese stock market, expectations of loose policies, improved corporate profits, and stabilizing macroeconomic indicators. In addition, Goldman Sachs maintains a "buy" rating for Chinese A-shares and overseas listed Chinese stocks, with the core reason being attractive valuations and the potential for renewed capital inflows as market sentiment improves.