Wang Zonghao, Head of China Equity Strategy Research at UBS Investment Bank, said that the improvement in the underweighting of China equities is suspected to be the confluence of increased allocation by investors and outperformance of investment portfolios.

However, among these funds, although their benchmarks include Chinese stocks, about 200 funds did not hold any Chinese stocks as of the third quarter, and 15 global investment funds that held a small position in Chinese stocks closed their positions in the third quarter.

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Meanwhile, 18 EM investment funds no longer held any Chinese equity positions. For these funds, it is estimated that US$8.8 billion of Chinese equities would need to be purchased to completely neutralize their positions.

Wang also pointed out that investors are keen on internet companies and expect southbound capital inflows to persist. Meanwhile, northbound investors appear to be more cautious. Banks were the sector with the most buying in the third quarter, but F&B received a small inflow after becoming the sector with the most selling in the second quarter, indicating a better market sentiment.

According to data from the UBS Investment Bank’s quantitative team, institutional holdings of internet and banking stocks remained the most crowded over the past four weeks, while insurance stocks tracked the largest increment in institutional holdings.

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