In the context of escalating international risk events and increasing global stock market volatility, an increasing amount of global capital is returning to Chinese equity assets.

The latest data from EPFR, a global fund flow monitoring institution, shows that as of the first week of August, global funds flowing into Chinese equity funds (mainly invested in Chinese concept stocks, A-shares, and Hong Kong stocks) have exceeded 75 billion US dollars this year, which is about 25 billion US dollars higher than the same period last year. Currently, Chinese equity funds have achieved net inflows for ten consecutive weeks.

"Behind this is the sharp fluctuation of the Japanese stock market, which has made global capital suddenly realize that aggressive adjustments in the monetary policies of some countries will lead to black swan events in the financial market. It has become urgent to take precautions and increase positions in safe-haven assets," said an emerging market investment fund manager.

Sunil Tirumalai, a global emerging market equity strategist at UBS, pointed out in the latest report that as global capital increasingly focuses on the risk of a US economic recession, Chinese equity assets may become a major "beneficiary" because Chinese equity assets have shown higher defensiveness during several recent risk events.

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Reporters have learned from multiple sources that although capital continues to flow into Chinese equity funds, the latter may not significantly increase their positions in the A-share market. In contrast, Hong Kong stocks and Chinese concept stocks, which have a stronger valuation lowland effect and an increasingly apparent profit effect, are becoming the focus of their asset allocation.

The reasons are twofold: firstly, Hong Kong stocks and Chinese concept stocks have a large number of leading listed companies in China's high-tech field, and their future performance growth is relatively better; secondly, considering the convenience of cross-border capital flows, some Chinese equity fund management teams are more inclined to invest in Hong Kong stocks and Chinese concept stocks.

Data shows that since August, the net outflow of northbound funds has exceeded 34.1 billion yuan. "But this does not mean that Chinese equity funds and global capital have ignored the bottom-fishing investment opportunities in the A-share market," the aforementioned emerging market investment fund manager pointed out.

Huang Senwei, a senior market strategist at AllianceBernstein, said that from a global asset allocation perspective, the valuation of A-share listed companies is currently low, and the annual profit growth rate of A-share companies this year is expected to reach 13.6%. In contrast, the expected annual profit growth rate of Japanese listed companies this year is only 9.4%, and the valuation level is far higher than that of A-shares. Therefore, in terms of value investment, global capital may pay more attention to the investment opportunities in the A-share market.

Chinese equity assets have defensive attributes. In the view of industry insiders, the "defensive attributes" of Chinese equity assets are the biggest driving force for global capital to increase positions in Chinese equity assets recently."The sharp fluctuations in the Japanese stock market at the beginning of August have triggered global capital's concerns about further interest rate hikes by the Bank of Japan. Coupled with the increased risk of a recession in the US economy, more and more global capital is flowing towards Chinese stock assets, which have stronger defensive attributes," said the aforementioned emerging market investment fund manager.

So-called defensive attributes, in addition to low valuation and a positive economic outlook (higher investment safety), another important factor is the low degree of asset trading congestion.

Huang Senwei pointed out that in terms of trading congestion, the proportion of Japanese stock allocation by global hedge funds is at a multi-year high, posing a higher risk of trading congestion. In contrast, their holdings in Chinese stocks are at a multi-year low, indicating that the risk of trading congestion in Chinese stocks is relatively low. Moreover, the valuation of Chinese stock assets is generally low at present, and any policy and market benefits that exceed expectations could trigger a rise in the Chinese stock market.

In the view of many fund professionals, another factor that cannot be ignored in the high defensiveness of Chinese stock assets is the relatively low correlation between Chinese stocks and the risk of a US economic recession. Currently, a new investment perspective is gaining popularity on Wall Street, which is that if the US economy falls into a recession, emerging market stock markets that are highly correlated with the prosperity of the US economy may also face the risk of decline, but Chinese stocks are "not included."

UBS Global Emerging Markets Equity Strategy Analyst Sunil Tirumalai believes that looking at the past six rounds of interest rate cuts by the Federal Reserve, the median return rate of the MSCI Emerging Markets in the six months after the start of the Federal Reserve's interest rate cut cycle is 1.6%. However, if signs of a recession still appear in the US economy after the Federal Reserve's interest rate cut, its return rate drops to -3.4%. Among them, the revenue growth of MSCI-listed companies in Poland, Thailand, and Mexico is more sensitive to fluctuations in the US economy, while the sensitivity of Chinese listed companies is the lowest.

"This attracts many global investment institutions that bet on a US economic recession to increase their holdings in Chinese stock funds, as an important measure to hedge against the risk of a US economic recession," the aforementioned emerging market investment fund manager analyzed.

Hong Kong stocks and Chinese concept stocks are favored.

Despite the influx of a large amount of global capital, Chinese stock funds have not yet started a large-scale increase in A-shares.

"Behind this, most Chinese stock funds adopt a subjective long stock strategy, and they will choose the best investment strategy according to the future income prospects and current market performance of different types of Chinese stock assets," the aforementioned emerging market investment fund manager said. At present, most Chinese stock fund management teams are more willing to invest incremental funds in Hong Kong stocks and Chinese concept stocks because they believe that Hong Kong stocks and Chinese concept stocks are affected by factors such as the Federal Reserve's interest rate cuts, and are more likely to attract more global capital in the short term.

It should be noted that some keen Chinese stock funds and global capital have begun to look for bottom-fishing investment opportunities in the A-share market.Lianbo Fund's Investment Director, Zhu Liang, stated that the current A-share market is one of the most attractive stock markets globally. Historically, the A-share market has a higher probability of investment success at low valuation levels. Specifically, the current A-share market's price-to-book ratio is only 1.55 times, but since 2008, when the A-share market's price-to-book ratio falls to 1.4-1.6 times, the cumulative average return over the next two years reaches 52%.

Dhaval Joshi, a strategy analyst at the British research institution BCA Research, pointed out that over the past few years, the Chinese stock market has been "lukewarm," providing an excellent tactical opportunity to go long. Especially recently, the retreat of the yen carry trade and the increased volatility of the U.S. stock market have both provided a good tactical entry point for increasing holdings in Chinese stocks.

"Once the money-making effect in the A-share market becomes apparent, the intensity of Chinese stock funds and global capital adding positions in A-shares may exceed market expectations, as no one wants to miss this highly favorable opportunity to bottom-fish for profits," the aforementioned emerging market investment fund manager pointed out.