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Morgan Stanley Report Summary - China/HK Equity Fund Flows and Positioning (April 2025)

Key Highlights

1. Foreign Fund Flows (April 2025)

   • Foreign funds experienced a $5.3 billion outflow in China A-shares (April), reversing a two-month inflow trend since February 2025.
   • The outflow was primarily driven by $1.6bn in active funds and $3.7bn in passive funds (compared to $2.5bn passive inflows in March).

2. Cumulative Performance

   • Foreign passive funds saw cumulative inflows (since October 2022) reach a historical trough as of April 2025, despite strong early inflows.

3. Active vs Passive Fund Strategies

   • Active funds increased positions in portfolios weighted toward QTD gains, trimming holdings in media/entertainment (e.g., Tencent) and adding exposure to companies like Alibaba and BYD.
   • Passive funds saw inflows ($27bn in April) driven by national policies, reversing weak performance since February 2025.

4. Southbound Stock Connect

   • Southbound flows reached $21bn in April, pushing 4M25 net inflow to $77bn (up from $103bn in 4M24), recovering from prior outflows.

5. Short Interest and Top Holdings

   • Short interest in China/HK equities hit $0.4bn in April, concentrated in Energy and Industrials.
   • Top long positions included Alibaba, BYD, Trip.com, CCB, and Tencent (heavily trimmed), reflecting active fund rotations.

6. Industry-Level Adjustments

   • Active funds trimmed underweights in Technology and Materials but added bias toward Household & Personal Products.
   • Media & Entertainment faces broader减持 pressure, while banks and insurers show increased preference in passive and domestic flows.

Conclusion

China/HK equities experienced mixed fund flows in April 2025, with foreign funds reversing positive trends amid geopolitical and regulatory factors. Active managers prioritize growth sectors and high-alpha performance, while domestic funds drove strong inflows ($27bn), particularly through policy support and renewed institutional confidence. Analyst interests remain focused on consumer staples, financials, and infrastructure, with recommendations subject to research conflicts.