China seeing global flows for diversification
Appetite among equity investors continues to moderate from the previous concentration on US stocks, with markets in Asia – especially China – seeing inflows.
The technology sector has been a notable beneficiary of this rebalancing in portfolios, spurred by the Chinese government's change in stance from a technology crackdown a couple of years ago to its new agenda of technological self-sufficiency.
The artificial intelligence (AI) story is a big winner and has, subsequently, dominated the headlines. “China is building its own AI ecosystem, and this is the growth engine of the economy,” said Andy Ng, head of iShares equity product strategy for APAC at BlackRock.
Yet demand is broader than just AI businesses. It includes companies involved in the infrastructure needed to drive AI development – from the manufacturing and design of semiconductor chips, to high-tech electronic equipment required for data centres.
The more supportive tone from the Chinese government has also encouraged a growing number of investors to pay more attention to the domestic market. Flows into China equity exchange traded products (ETPs) have followed, especially since April 20251, spurred also by the desire among many investors to diversify away from US assets.
“Overall there are still some risks, and trade tensions can make the market more volatile, but investors may want to pay attention to the structural growth opportunities in China,” added Emerald Yau, head of equity index product management for FTSE Russell in APAC.
A new-look China
Coupled with cautious optimism, these trends point to China at a turning point.
Opportunities are re-emerging as policymakers pursue stimulus packages and anti-involution initiatives to stabilise short-term growth while also unlocking long-term potential through structural reforms.
At the heart of this dual goal are measures to reflate the economy, raise incomes and restore consumer confidence are in the pipeline. The rise in home-grown advanced technologies should help fuel these initiatives and, in turn, reshape household, industrial and financial sectors with lasting impact.
Ultimately, by integrating its manufacturing scale with cutting-edge innovation, China is enhancing efficiency, quality and precision across industrials and technology.
Making the potential pay off
For investors, China’s shifting landscape is creating new avenues to participate in the transformation.
In general, China earnings are growing as domestically-driven revenue is insulated from tariffs. For example, China A-shares earnings growth expectations are rising since China companies derive most of their revenues within the mainland, with a limited exposure to the US. And in the bid to diversify internally, there is potentially room to run for Chinese equities as earnings rise on supportive fiscal and monetary policies.
In the tech space, global investors are buying the China tech story. The positive flows into Chinese equity ETPs2 are testament to this.
Under this market environment, the FTSE China A50 Index continues to serve as a gateway for investors to the Chinese market.
Relatively concentrated with only 50 stocks, the Index is representative of the broader A-Share market, explained Yau. As a result, as domestic reforms gain momentum and work through the economy, the larger players captured by the Index are likely to benefit first.
Changes in the composition of stocks in the Index reflect the new dynamics of China’s economy. For example, added Yau, the number of technology and telecoms equipment companies had gone up from three at the end of 2024 to six by the end of the third quarter 20253, all of which are focused on the infrastructure required to power AI – such as semiconductors and optical modules. By contrast, financials and real estate has fallen from around 70% of the Index in the mid-2010s to roughly 30% today4.
Diversifying within China
Beyond tech, the FTSE China A50 index includes the largest 50 companies across 10 of the 11 sectors that are positioned to benefit from ongoing reforms and potential M&A activities.
Some of these companies are riding the domestic consumption wave, amid the rise of premium domestic brands in terms of smart household appliances and electric vehicles. Other companies are benefitting from the policy support focused on prioritising high-tech industries and decarbonisation – from semiconductor design and biotech solutions, to smart transportation solutions and energy storage technology.
“Many of these sectors in China have a very low correlation to global stocks,” explained Ng.
Further, added Yau, there is often a misunderstanding among global investors about the volatility of China’s A-shares market. “In fact, the market is still somewhat controlled in terms of access… The volatility of China A-shares is lower than offshore Chinese stocks in Hong Kong or the US.”
The reality, added Ng, is that accessing China via an index such as the FTSE A50 China offers one of the most liquid and traded routes in the Hong Kong market. At the same time, a robust derivatives ecosystem offers the tools to give foreign investors hedging opportunities.
Sources -
1 - Source: iShares, “China tech in the spotlight”, July 2025
2 - Source: iShares, “China tech in the spotlight”, July 2025
3 - Source: FTSE Russell, FTSE China A50 Index Factsheet
4 - Source: FTSE Russell, FTSE China A50 Index Factsheet
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