Global hedge funds are increasing exposure to Chinese equities, with August set to record the strongest monthly inflows since February, according to a report by Reuters citing a recent note from Morgan Stanley's prime brokerage desk.

The buying has been concentrated in onshore A-shares, marking a shift from February’s surge into Hong Kong-listed tech stocks following DeepSeek’s AI breakthrough. Inflows last week were led by consumer staples and industrials, while hedge funds pared back positions in Hong Kong internet names through a mix of long reductions and short-selling.

China’s domestic equity markets have rebounded sharply in Q3 after lagging regional peers earlier in the year. The Shanghai Composite has gained 12% month-to-date, while the CSI 300 is up 9%, hitting a 10-year high. Analysts attribute the rally to abundant liquidity and improved sentiment around U.S.–China trade discussions.

Performance has followed suit. China-focused equity long-short funds are up 3% in August through the 22nd, extending year-to-date returns to 13.5%, Morgan Stanley estimates.