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Investing.com -- Foreign-domiciled funds increased their investment in Chinese equities to $2.7 billion in July, up from $1.2 billion in June, driven primarily by passive fund inflows.
Passive funds led the trend with $3.9 billion in inflows, compared to $2.7 billion in June. Meanwhile, active funds continued to experience outflows, though these narrowed to $1.2 billion from $1.6 billion in the previous month.
The passive fund inflows were concentrated in the latter part of July, coinciding with multiple announcements related to anti-involution measures. U.S. passive funds showed a notable acceleration into Chinese equities, while European passive fund flows remained stable.
Year-to-date cumulative foreign passive inflows reached $11 billion as of July 31, already exceeding the 2024 full-year level of $7 billion. Active fund outflows have reached $11 billion year-to-date, showing improvement compared to the $24 billion outflows recorded in 2024.
Global funds and Asia ex-Japan funds slightly reduced their underweight positions in China to 1.4 percentage points and 0.3 percentage points, respectively. In contrast, emerging market funds increased their underweight positions in China to 3.2 percentage points.
By sector, active fund managers increased their overweight positions most significantly in Media & Entertainment, Pharmaceuticals, and Insurance during the quarter. They reduced overweight positions most notably in Consumer Services and Consumer Durables & Apparel.
For underweight positions, fund managers increased their underweights most significantly in Consumer Discretionary Distribution & Retail, Technology, and Utilities, while reducing underweights in Semiconductors.
At the company level, Tencent (HK:0700), Netease, Jiangsu Hengrui, and Wuxi AppTec saw the most additions to portfolios, while Meituan and Xiaomi (OTC:XIACF) experienced the most reductions during the quarter.
On the domestic front, Chinese passive funds targeting A-shares continued to record outflows, reaching $6 billion in July compared to $3 billion in June. However, Southbound Stock Connect inflows accelerated to $17 billion in July from $10 billion in June, bringing the seven-month total for 2025 to $110 billion, already exceeding the full-year 2024 figure of $103 billion.
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