Chinese equities: Flows support buy-the-dip stance – BNY

BNY’s Geoff Yu notes that despite a bear market in the Hong Kong China Enterprises Index and 15–16% declines in Chinese equities this year, institutional investors continue to add exposure. Holdings remain elevated versus longer history, and Yu argues that cheaper valuations, resilient exports and potential policy support underpin a buy-the-dip mentality in major China benchmarks and ETFs.

Institutional investors keep adding China

"Despite this weakness, our data shows institutional investors continue to buy Chinese equities, with inflows outperforming the rest of Asia (Exhibit 2) where sentiment has been weighed down by outflows from South Korea and Taiwan. However, Chinese equities have fallen 15% to 16% this year, meaning losses on existing holdings have more than offset the value of new purchases."

"China holdings currently rank in the eighth percentile of their 2026 range, but that range has been exceptionally tight: holdings have fluctuated between roughly 10% and 18% above their rolling 12-month average throughout the year. In other words, the low percentile ranking reflects a modest decline from elevated starting levels rather than an outright underweight position."

"Investors appear to be buying Chinese equities because the recent selloff has created a more attractive entry point. Major China ETFs are down close to 20% from their year-to-date highs and more than 12% below their 200-day moving averages, leaving the market deeply oversold."

"Yet valuations remain relatively undemanding, with the Shanghai Stock Exchange trading on a trailing P/E of 17.6x and the HSCEI on 11.3x. For many institutional investors, the decline in prices appears greater than any deterioration in the long-term investment case, supporting a buy-the-dip mentality."

"From an asset allocation perspective, the combination of attractive valuations, better export data and the potential for further policy support in response to equity market signaling helps explain why cross-border investors continue to add exposure despite recent market weakness."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)