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US- and Europe-domiciled active funds continued to rebalance away from Chinese and Hong Kong equities in June, further reducing their holdings compared to the MSCI regional indices, Morgan Stanley said in a note.
Regional long-only fund managers sold in the first half of June when China market was rising, reducing their active weights on China by an average of 0.3% compared to the benchmark, and the selling paused in the second half of June due to the market pullback, it said.
According to EPFR data, active long managers sold a net $1.56 billion of stocks in mainland China and Hong Kong in June, of which $400 million were due to client redemptions and $1.1 billion due to fund managers rebalancing positions in China and Hong Kong. European-domiciled funds continued to dominate the selling money flow.
Fund managers in general cut back on investments in consumer services, consumer staples and automobiles in Q2, with a gradual rotation from China ADRs to A-shares and H-shares in terms of equity class allocation, it said, adding that NetEase, Ping An Insurance and China Merchants Bank leading the overweight additions in H-shares.