Offshore investors are becoming increasingly optimistic about the sustainability of China’s consumer recovery, driven by policy stimuli and shifts in consumption patterns. Goldman Sachs reports that European Emerging Markets funds are particularly keen to raise their stakes in Chinese consumer stocks, which are currently at low holdings.
Since January 2025, there has been a marked rise in long positions among these funds. Value funds are focusing on underperforming stocks that may benefit from policy changes, while more active funds are exploring new investment opportunities.
Government Support And Spending Shifts
This growing confidence stems from a combination of government support and broader adjustments in spending behaviours. Analysts at Goldman Sachs note that the increased positioning by European Emerging Markets funds reflects a shift towards anticipating stronger corporate earnings in sectors tied to domestic demand. At present, investments in Chinese consumer stocks remain below historical levels, suggesting room for further allocation.
Long positions among these funds have been climbing steadily since the beginning of the year. Value-oriented strategies are concentrating on shares that have lagged but could recover if economic policies create the right conditions. On the other hand, funds with a more dynamic approach are looking beyond traditional industries, searching for firms poised to take advantage of changing consumption habits.
Although optimism is rising, much depends on the execution of policy measures aimed at sustaining momentum. Any adjustments in government stimulus or shifts in consumer sentiment could influence overall positioning in the weeks to come. Stability in key economic indicators may encourage further capital inflows, while weaker-than-expected data could lead to reassessments.
From our perspective, tracking fund flows is essential in assessing the durability of this trend. The pace at which institutional portfolios reweight towards Chinese equities will offer clues about broader conviction levels. Monitoring how these funds rotate between different consumer segments can also provide insight into expectations for specific industries.
Monitoring Market Sentiment
Market participants should be aware that while valuations in some areas remain attractive, the timing of policy effects will ultimately determine performance. Some funds are taking a gradual approach, increasing exposure selectively rather than making broad-based allocations. Others are more aggressive, stepping in early to establish positions that could benefit if consumer spending gains strength.
For those observing price movements, recent activity suggests a growing willingness to test the upside in certain stocks. This has led to a rise in options market activity, with more participants positioning for potential gains. Changes in implied volatility levels should be followed closely, as they often signal adjustments in broader sentiment.
Economic data releases in the coming weeks will be pivotal in shaping next steps. Investors seem prepared to react swiftly to any updates that could alter their outlook on earnings or policy direction. Adjustments in exposure may not be uniform across all strategies, with some prioritising stability while others lean towards higher-risk opportunities.
As long as buying interest continues, momentum could persist. However, any disappointments on the policy or consumer side may lead to recalibration. For now, sentiment appears to be improving, though the strength and duration of this trend remain subjects of active debate.
