Sovereign wealth funds ramping up allocation to Chinese assets

Foreign financial institutions are showing growing confidence in China's economic prospects by increasing their exposure to Chinese assets, as the country's innovation-driven development and structural growth opportunities gain global recognition.

The optimism is supported by China's accommodative macroeconomic policies and its accelerating transformation in key sectors, such as advanced manufacturing, clean technology and digital innovation. These trends signal that China is positioning itself at the forefront of the next wave of global economic growth — a shift that international asset owners are increasingly unwilling to ignore.

According to the Global Sovereign Asset Management Study 2025, released on Monday by United States-based investment management company Invesco, 59 percent of the 83 surveyed sovereign wealth funds will increase their allocation to Chinese assets over the next five years.

While sovereign wealth funds based in the Asia-Pacific region are leading the rise, with 88 percent of them ready to increase their exposure to Chinese assets, about 73 percent of North American funds have also shown high willingness to engage, "demonstrating a readiness to look beyond current political tensions and focus on long-term structural opportunities", Invesco experts said.

Attractive local returns, diversification benefits and higher openness to foreign investors are the major drivers for sovereign wealth funds' rising interest in Chinese assets, according to the report.

Digital technology and software, advanced manufacturing and automation, and clean and green technology are the top three sectors in China that have the maximum appeal among sovereign wealth funds. Meanwhile, 78 percent of the surveyed funds believe that China's technology and innovation sectors will become globally competitive.

This reflects both a structural belief in China's innovation momentum and a strategic desire not to be left behind as a new global technological leadership emerges, Invesco experts said.

Other global financial institutions have stepped up their reach in the Chinese market.

KZVK, a German pension fund that manages assets worth 36 billion euros ($42 billion), recently selected Hong Kong-based Fullgoal Asset Management to run a $50 million mandate to invest in Chinese equities listed in Hong Kong, the Chinese mainland and the US.

Oliver Lang, a KZVK board member, said in May that the German fund has maintained a strategic underweight to China relative to the size of its GDP and market capitalization. But the company will continue to allocate its capital to regions offering real economy and productivity growth, in order to meet long-term return targets, he added.

According to information from the public domain, leading mutual fund companies with operations in China, including Neuberger Berman, Fidelity International and JP Morgan Asset Management, have released 31 new products so far this year, an increase of 138 percent compared with the same period last year. The combined value of these products has reached 36 billion yuan ($5 billion), up 43 percent year-on-year.

Experts from Neuberger Berman, an investment management firm based in New York City, said in a recent report that Chinese assets have shown much investment value this year, thanks to the country's competitive edge in manufacturing, the potential of renminbi's appreciation, the improving profitability of companies and supportive policies.

In another report released on July 3, analysts from Fidelity International said an increasing number of Chinese enterprises are taking the lead worldwide in terms of artificial intelligence, electric vehicles, supply chain, industrial automation and healthcare. China has seen its innovation momentum growing from a structural perspective, they said.

Meng Lei, a China equity strategist at UBS Securities, said that as the A-share market is now showing a 12 to 13 percent discount compared to other emerging markets, there is more room for growth for the major indexes in China, given the country's moderately relaxed credit environment and no expectation of a major external impact in the near term.

The benchmark Shanghai Composite Index added 0.27 percent on Monday to close at 3519.65 points, its highest level so far this year, with new material and humanoid robot companies leading the rally.

Meng said the Chinese capital market will see its appeal among international investors gradually rise amid the ongoing institutional reforms, which include lowering the entry threshold for foreign-invested companies and support for boosting the vitality of private enterprises.

According to the latest data released by the Shanghai and Shenzhen exchanges, foreign investors' A-share holdings through stock connect programs reached 2.29 trillion yuan by the end of the second quarter, up 50 billion yuan from the first quarter.

Mark Wang, president and CEO of HSBC China, said the series of supportive and opening-up policies released by China's top financial regulators during this year's Lujiazui Forum will further consolidate foreign institutions' confidence in expanding their businesses in China.

Cross-border finance, green financing and wealth management are the likely areas where foreign institutions could give more play to their strength, he added.