During the National Day holiday, overseas markets were anything but calm. The 10-year US Treasury yield briefly broke above 5.352%, hitting a 24-year high.

Even under the shadow of high interest rates, foreign institutions' attention to Chinese assets rose rather than fell. A recent Bank of America report showed that global active long-only funds have raised their allocation to Chinese stocks from "underweight" to "benchmark neutral," ending a four-year underweight streak. Global asset management giants such as Fidelity International and Wellington Management have also spoken out, actively searching for China's "next generation of winners" amid a complex macro backdrop.

US Treasury yields hit a 24-year high

In mid-September, the Federal Reserve unanimously raised rates by 25 basis points, lifting the target range to 3.75%-4%, its first hike since July 2023. The Fed's dot plot showed that most officials expect one more rate increase before the end of the year. On October 7, the 10-year US Treasury yield briefly broke above 5.352% during intraday trading, setting a 24-year high.

During the National Day holiday, overseas markets saw notable volatility, while domestic consumption recovered steadily. Big data from the Ministry of Commerce showed that from October 1 to 3, foot traffic and turnover at 78 key monitored commercial districts rose 3.4% and 5.3% year-on-year, respectively. Trade-in programs drove 19.63 billion yuan in sales, benefiting 3.483 million people.

Global long funds raise Chinese equity allocations

Bank of America strategist Nigel Tupper said in a latest report that among nearly 2,800 global funds, active long-only funds have since June shifted their average allocation weight to Chinese stocks from "underweight" to "benchmark neutral," ending a four-year underweight period, with total holdings of Chinese stocks reaching $562 billion. The report also said this marks that "position-cutting is basically over," removing a major obstacle constraining a market recovery. In August, ETFs focused on A-shares and Hong Kong stocks saw net inflows of $19 million, after net outflows of $1.94 billion in July.

Research activity also confirmed foreign institutions' "enthusiasm." In the third quarter, foreign institutions conducted a total of 2,285 research visits to A-share companies, with Goldman Sachs (Asia) leading at 67 visits, while JPMorgan and Citi were also on the list. At the individual stock level, Montage Technology ranked first with visits from 149 institutions, followed by Guanghe Technology and Orbbec in second and third places, with subsectors such as memory interfaces for AI computing hardware, server PCBs, and 3D vision sensing drawing the most attention. In addition, BeiGene, United Imaging Healthcare, and Mindray Medical received visits from 75, 49, and 31 institutions, respectively.

Fidelity International: A-share earnings and valuations have room to improve

Fidelity International fund manager Tian Di said that although China's economic fundamentals have improved somewhat, global funds remain "underweight" Chinese assets, partly because the focus of the China narrative has been dominated by macro factors. "The current forward price-to-earnings ratio of A-shares is only 10 times, which not only fails to fully reflect the long-term prospects of many Chinese companies, but is also far below the historical average and at a sizable discount to some developed markets. Fidelity believes A-share earnings and valuations have room to improve."

In Tian Di's view, China's economy is operating on a "dual track," with most market attention focused on AI training hardware, but as the industry develops, real-world applications such as robotics and autonomous driving may become increasingly important. China has advantages in robotics and autonomous driving manufacturing, supply chains, AI development, and real-world application scenarios, and industrial applications of humanoid robots are continuously increasing. In addition, in healthcare, international pharmaceutical companies are showing growing interest in China's innovative drugs, with drug licensing activity continuously rising, creating long-term opportunities far beyond traditional consumer sectors.

Regarding consumption and real estate, Tian Di said rebuilding consumer confidence first requires stabilizing income expectations, and second, asset prices, especially real estate prices, need to stabilize. At present, consumption patterns have clearly changed, with consumers increasingly pursuing experiential, cost-effective products with strong emotional connections.

Wellington Management: Continue to overweight emerging market equities

In its September monthly outlook, Wellington Management maintained a moderate overweight on global equities and continued to overweight emerging markets. In terms of specific positioning, Wellington Management continued to overweight emerging market equities but slightly reduced the size of the overweight after the recent market rebound. "Emerging markets remain our most favored region. Their exposure to the AI supply chain, as well as more favorable earnings growth differentials relative to other markets, especially versus the UK, both provide support. A weaker US dollar and a shift in rate expectations toward a less 'hawkish' direction also provided additional support, but given the strong market performance so far this year, we believe the overweight size should be adjusted moderately," the institution said.

In addition, several foreign institutions expressed attention to the Chinese market. Goldman Sachs believes Chinese assets are a good target for diversified allocation, and A-shares are better than H-shares; UBS Securities expects A-share earnings growth of 15% in 2026; BlackRock maintains a neutral view on Chinese stocks but clearly focuses on AI hardware, power grid equipment, and physical AI; Invesco is bullish on China's technology ecosystem. Previously, Citi and Standard Chartered had already upgraded Chinese stocks to "overweight."