In a notable shift, South Korean investors are increasingly turning their attention to Chinese stocks, diverging from the traditional focus on Wall Street. This move comes as Chinese equities outshine their US counterparts and draw significant interest from global investors. Over the past month, South Korea has witnessed a substantial net inflow of funds amounting to 214.4 billion won ($148 million) into equity funds tracking Chinese stocks. This surge marks a significant reversal from the previous trend of outflows, signaling a renewed enthusiasm for Chinese investments among South Korean investors.

The appeal of Chinese stocks is further underscored by the impressive performance of 185 China stock funds in South Korea, boasting an average six-month return of 43.56% as of March 12, surpassing the returns of other equity funds such as Korean, US, Japanese, Vietnamese, and Indian stocks over the same period. Notably, Chinese technology companies have been driving these gains, particularly buoyed by the success of DeepSeek, a Chinese AI technology comparable to Wall Street’s ChatGPT. The soaring performance of the Hang Seng Index (HSI) in the last six months, up by 45%, has also contributed to the growing allure of Chinese stocks.

Among the standout performers in the Chinese stock market are the “Terrific 10,” a group of tech giants including Semiconductor Manufacturing International Corp. (SMIC), Xiaomi, Alibaba, Tencent, and BYD. These companies have collectively posted double-digit gains year-to-date, with SMIC leading the rally with a remarkable 62.14% increase in its stock value. Analysts point to China’s advancements in electric vehicles and autonomous driving as key drivers of the country’s competitive edge in the global market, particularly in light of Tesla’s recent challenges.

The surge in Chinese stock investments has not gone unnoticed, as South Korean investors ramp up their trading activities in Greater China stocks, including equity funds, which saw a staggering 179% increase in trading volume last month compared to the previous month. This spike marked the highest level in two and a half years, reflecting the growing confidence in Chinese equities among South Korean investors.

Furthermore, the resurgence in Chinese stocks has had a positive spillover effect on equity-linked securities (ELS) tied to the Hang Seng Index. After facing significant losses in late 2023 and early 2024, ELS investors are now witnessing a rebound, with HSI-linked ELS funds maturing this year poised to deliver promising returns. This turnaround has reignited investor interest in ELS products, with inflows reaching 225.8 billion won in the first two months of 2025, nearly quadruple the inflows recorded during the same period last year.

In conclusion, the surge in Chinese stocks and the subsequent influx of South Korean investments into this market highlight a notable shift in investor sentiment and portfolio diversification strategies. The robust performance of Chinese equities, driven by technological advancements and government stimulus measures, has positioned the Shenzhen Stock Exchange as a compelling investment destination for South Korean investors seeking lucrative opportunities beyond traditional markets.