From "avoiding it" to "running into the field": AI wave triggers 28% stock index increase, Chinese hedge funds become the new darling of global capital.

The annual survey conducted by the Paris Bank of France shows that an increasing number of global investors plan to increase their investment in China-focused hedge funds this year, marking a sharp reversal from three years ago when there was a rush to withdraw funds. The survey found that 14% more investors in 2026 intend to inject more funds into Chinese funds, with around 9% of investors already taking action last year. The survey indicates that as funds are more widely shifted from US assets, investors' demand for exposure to risks in the world's second-largest economy this year is only slightly lower than their interest in North America, the latter of which has significantly declined since 2025. This further confirms the warming trend since 2023in which 42% of fund allocators withdrew funds from Chinese funds. "The turnaround story for China really began last year," said Marin Naidu, head of global capital introduction business at the bank's London office, in an interview. "It feels like this trend will be even more pronounced this year." The survey conducted in December last year covered 246 fund allocators who either directly allocate funds to hedge funds or provide advice to clients with such needs. The hedge fund assets managed by these institutions totaled $1.1 trillion, accounting for more than one-fifth of the total industry size globally. In recent years, increasing geopolitical risks, China's economic slowdown, and regulatory crackdowns on multiple industries have deterred investors. The MSCI China Index is currently down more than 30% from its peak in mid-February 2021. The renewed interest in Chinese funds stems from the breakthrough in artificial intelligence by DeepSeek at the beginning of last year, which triggered a widespread rally and drove benchmark indexes to rise by 28% at the end of the year, marking the largest annual increase since 2017. Chinese stocks outperformed MSCI's broader Asia-Pacific index, with a gain nearly 12 percentage points higher than the S&P 500. Despite investors heating up again for the Chinese market, they still prefer funds covering a broader Asia-Pacific market. A net 30% of respondents plan to increase their holdings in such funds in 2026, higher than the actual 24% increase last year. The region has become the second most favored destination this year, after Europe, with North America dropping to fifth place. Naidu pointed out that funds investing in the entire Asia-Pacific market used to heavily rely on China, but in recent years have become more diversified, increasing investments in Japan, South Korea, and India. He mentioned that some planned allocations for this year may have been deferred from last year, as the actual increase in 2025 did not meet the target. "We continue to observe that there is greater demand for broad Asia funds compared to single-country China funds," he said. "However, there are also more people now who are comfortable with investing in single-country China funds."