Investors eye China and Hong Kong stocks

[WORLD] Global investment advisory Cambridge Associates reports that international investors are rebalancing their portfolios away from the US, focusing more on undervalued stocks in Hong Kong and mainland China. This shift comes amid escalating geopolitical tensions, particularly between the US and China, which have heightened the risks of a US-heavy portfolio. Despite aggressive US tariffs under the Trump administration, equities in Asia have outperformed expectations this year.

Aaron Costello, Cambridge Associates’ head of Asia, highlighted that Chinese and Hong Kong equities remain attractive even after recent gains. He argues they offer compelling valuations compared to the relatively expensive US stock market. These Asian markets are seen not only as growth opportunities but also as a defensive play against potential geopolitical or market shocks.

In short, global investors are seeking a balance: reducing exposure to the high-priced US market while capitalizing on the relative undervaluation and resilience of Asian equities. This reallocation reflects both tactical (short-term) concerns and strategic (long-term) investment thinking.

Implications

For businesses, especially fund managers and institutional investors, this trend signals a possible pivot in capital flows toward Asia, potentially boosting liquidity and valuations in Hong Kong and mainland China. Companies listed on these exchanges could benefit from increased investor attention, raising their international profiles and access to funding.

For consumers and individual investors, the shift may result in more diversified global investment products, with greater exposure to Chinese and Hong Kong assets. Financial advisors might increasingly recommend international funds or ETFs that capture these emerging opportunities, aiming to hedge against US-centric market risks.

In terms of public policy, this rebalancing underlines the interconnectedness of financial markets and geopolitics. While US-China tensions create risk, they also create valuation gaps that investors are eager to exploit. Policymakers in both the US and China will need to be mindful of how diplomatic moves impact not only trade but also capital markets.

What We Think

This trend highlights a classic investor instinct: when valuations get stretched in one region, capital searches for better value elsewhere. “Expensive” is not just a buzzword; it’s a real constraint, especially for large institutional players who must justify returns to clients.

However, investors should tread carefully. While Chinese and Hong Kong stocks may look cheap, they come with unique risks, including regulatory unpredictability and geopolitical pressures. Diversifying into these markets makes sense, but overexposure could expose portfolios to shocks specific to China’s domestic and international policy environment.

We believe the smarter move is nuanced diversification—not just swapping US stocks for Chinese ones, but building a portfolio that can absorb shocks from multiple directions. “Defence” doesn’t mean avoiding risk altogether; it means preparing for where the next surprises will hit. For most readers, that likely means working with investment professionals who understand the subtleties of international markets rather than chasing headlines.