(Yicai) Oct. 17 — It is unsurprising that some overseas hedge funds have recently taken profits from their Chinese internet stock positions after a strong rally this year, Henry Greene, head of investment strategy at KraneShares, told Yicai.
The internet sector remains the most popular China equity theme this year, with inflows approaching USD2 billion so far, Greene told Yicai during the 2025 Greenwich Economic Forum, held recently in Connecticut, United States. While some funds have locked in gains, year-to-date net inflows are still around USD100 million, marking a sharp turnaround from the heavy outflows of recent years.
KraneShares’ flagship fund, KraneShares CSI China Internet ETF [NYSEARCA: KWEB], tracks the CSI Overseas China Internet Index, and remains the main vehicle for global investors seeking exposure to Chinese technology giants such as Tencent, Alibaba, and Pinduoduo. The ETF’s sharp rebound from an 80 percent collapse between 2021 and 2024 underscores a notable recovery in investor sentiment.
Greene noted that earnings growth in the internet sector has strengthened, with the rise of artificial intelligence further boosting market confidence. The emergence of major Chinese AI models — from startups like DeepSeek to big tech firms such as Alibaba with its Qwen series — has drawn global attention. Alibaba has also formed an internal robotics team, joining the global race to develop AI-powered physical products.
Progress in homegrown chips, including Baidu’s Kunlun and Alibaba’s T-Head series, has reinforced confidence by enabling Chinese internet firms to train larger AI models and expand their cloud businesses, Greene said. “The key question for investors,” he added, “is whether Alibaba’s accelerated cloud growth and surging capital expenditure can be supported by sufficient chip supply.”
That uncertainty helps explain the recent market volatility. Despite strong gains earlier this year, both the NASDAQ Golden Dragon China Index [INDEXNASDAQ: HXC] and KWEB have retreated about 10 percent this month as investors take profits.
“Given that KWEB is already up nearly 50 percent this year, it’s not surprising to see some profit-taking by global hedge funds,” Greene said. “Compared with long-only investors, hedge funds — the so-called ‘fast money’ — tend to move quickest in this type of rally.”
Many long-term institutional investors in Europe and the US remain cautious but are showing renewed interest. After years of scaling back their China teams, several firms have begun rehiring analysts, Greene said, adding that KraneShares has received increased requests for China equity research this year.
He concluded that a recovery in China’s domestic demand will be key to restoring long-term foreign investor confidence. “Whether domestic consumption can rebound,” Greene said, “is one of the most important indicators foreign institutions are watching.”
Editor: Emmi Laine
