Foreign investors have returned to actively investing in China’s equities, with inflows at record levels. Between January and October 2025, foreign investors have poured $50.6 billion into Chinese and Hong Kong equities, up from $11.4 billion the same time a year ago, according to the International Institute of Finance. Previously, foreign capital in China had been languishing amid stricter legislation, geopolitical tensions, and worries about stagnating economic expansion over the years. The bulk of the inflows came from passive investment vehicles Investors are turning to leaders in artificial intelligence, semiconductors, and next-generation tech, with Hong Kong’s IPO-heavy market drawing particular attention. Experts suggest that Chinese shares are relatively inexpensive, presenting a compelling opportunity for long-term investors. On the other hand, in China, the government introduced changes to increase QFII quotas and ease bureaucratic hurdles that had hindered the flow of cross-border funds, as well as clarify the need for transparency and the scope of foreign market access for investors. At the same time, Hong Kong is more focused on providing a clearer regulatory framework, which has reassured overseas investors when engaging with Chinese markets. Plus, over the past year, the government has mitigated market volatility by purchasing domestic ETFs in substantial quantities. In April 2025, the national team stepped in again to support equities after tariff-induced weakness. However, much of the money coming in is from passive investment vehicles such as exchange-traded funds (ETFs) and index funds. Active fund managers remain hesitant to invest in the country’s stock market due to persistent concerns about sluggish consumption, unclear regulations, and an aging population. Additionally, there’s still geopolitical friction between China and the U.S., as well as other nations, which could erode investor confidence if trade policies or market access changes suddenly. The surge in inflows is sector-specific, favoring technology and high-growth IPOs, analysts also warn, potentially adding market volatility if investor sentiment changes or companies in those areas continue to lag. Despite the surge in inflows, analysts warn that risks remain significant. China continues to battle weak property demand and lingering deflationary pressures, while uncertainty over future regulatory actions still hangs over major sectors, including technology, gaming, and education. Geopolitical tensions, particularly with the United States ahead of the 2026 policy cycle, could also dent future inflows if restrictions tighten. Nonetheless, Qiu Yong, chairman of the SSE, has encouraged investors to capitalize on the current tech development. He commented, “China’s economy is at a critical stage in a new round of technological revolution and industrial transformation. We sincerely invite global investors to pay active attention to and continuously invest in Chinese assets.” Allianz noted that domestic investors’ engagement influenced stock prices Research from Allianz shows that foreign investors accounted for only about 3% of the A-Share market by October, making domestic participants the main influencers of stock prices. Retail investors, especially, are returning to China’s markets after a prolonged hiatus, playing a crucial role in the recovery. Bank deposits have surged over the past couple of years in response to a slowing economy, rising job risks, and declining property prices, generating approximately $7 trillion in excess savings, which is roughly half the size of China’s A-Share market. Even so, low bond yields are encouraging investors to shift capital into domestic equities. In the long run, institutional investors such as insurance companies and pension funds are expected to increase their equity holdings, which are currently modest compared to those in developed markets. Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.
