China Equity Strategy Positions of Active Long-only Manager...-110655508

M UpdateChina Equity Strategy | Asia PacificPositions of Active Long-only Managers in China/HK Morgan Stanley Asia Limited+Chloe LiuEquity Strategist Chloe.Liu1@morganstanley.com +852 2848-5497 Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Jason Ng, CFAQuantitative Strategist Jason.Dl.Ng@morganstanley.com +852 2848-8845 Nicola MakQUANTITATIVE STRATEGIST Nicola.HY.Mak@morganstanley.com +852 3963-0368 Morgan Stanley Asia (Singapore) Pte.+Daniel K BlakeEquity Strategist Daniel.Blake@morganstanley.com +65 6834-6597 Exhibit 1 : Active weights of China/HK equities by regional fund category and manager domicile-5.0-4.0-3.0-2.0-1.00.01.02.0USManagersnon-USManagersUSManagersnon-USManagersUSManagersnon-USManagersGlobal Equity FundsAxJ Equity FundsEM Equity FundsOct-22Dec-22Mar-23Jun-23Dec-23Feb-24Mar-24Jun-24Jul-24Aug-24Sep-24AUM:US$920bnAUM:US$404bnAUM:US$84bnAUM:US$113bnAUM:US$190bnAUM:US$188bn Source: FactSet, MorningStar, EPFR, Morgan Stanley Research; data as of Sep. 30, 2024. Notes: fund universe of each category is formed by the largest 30 active mutual funds under MorningStar regional category. Funds under "non-US Managers" are mostly domiciled in Europe. We exclude ESG funds, income funds, and systematic funds. All the covered funds are benchmarking to either MSCI or FTSE standard regional indices of All Country World, Asia ex Japan, or Emerging Markets. China equity saw a meaningful inflow from foreign funds in late September after the stimulus, mainly driven by passive funds at US$6bn while active funds flow was modest at US$0.3bn in Sept 25-Oct 2. AxJ active funds reduced their China underweight more meaningfully than global and EM active funds. On Foreign domiciled funds flow:• China equity inflows from foreign domiciled funds were strong at US$6.3bn in Sept 25-Oct 2 after the stimulus was announced, mainly driven by passive funds at US$6bn, while active funds flow was modest at US$0.3bn. As of Oct 2, cumulative foreign passive flows surpassed the peak level in 2024 and back to Oct 2023 levels, while the cumulative foreign active flows are sill at an historical trough since late 2022 ( Exhibit 4 , Exhibit 5 ).• The China equity inflows from foreign domiciled funds were US$2.7bn in September, driven by passive fund inflows at US$3.8bn, while active funds still recorded outflows at US$1.1bn ( Exhibit 2 ).• Global funds are UW China by 1.1%, AxJ funds are UW China by 1.7%, and EM funds are UW China by 2.3%, according to latest available data: We saw AxJ active funds reduce their China underweight most meaningfully (especially US domiciled funds), followed by EM active funds and global active funds ( Exhibit 1 ).• Sector wise: On the o/w side, active fund managers added o/w in Media & Entertainment and Real Estate most QTD; On the u/w side, active fund managers trimmed u/w in banks, utilities and energy most QTD ( Exhibit 12 ).• Company wise: Tencent, Meituan, PDD and CCB were added the most, whi