China's slow-motion stock rally starts to win investor trust 

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By Samuel Shen, Jiaxing Li and Rae WeeFund managers are picking Chinese industrial stocks and holding volatile tech shares, betting a two-year-old equities rally can withstand an economic rough patch, as valuations and steady returns lure foreign investors back.China's blue-chip index CSI300 has matched the S&P 500 SP:SPX with a roughly 16% year-to-date gain, while Hong Kong's Hang Seng HSI:HSI - up about 30% - is on course for its most substantial annual rise since 2017.The mood is far from the stimulus-triggered euphoria of a year ago, though the ride is becoming bumpier - especially as pressure on developer China Vanke SZSE:000002 reminds market participants that a prolonged property downturn is far from over.But there seems to be little panic among investors and analysts who say the bull market is just taking a breather. "We believe we are just at the beginning of a gradual reallocation process by foreign investors coming back into China," said Morgan Stanley's chief China equity strategist Laura Wang."I think what they have seen so far through the course of this year has already been encouraging enough for them to gradually change their mind," she said, adding that she had been spending less time talking with investors about U.S.-China tensions. China stocks have also defied Sino-American trade friction and climbed thanks to state support, improved corporate governance and big gains for artificial-intelligence-linked stocks after the impressive release of DeepSeek's chatbot.A record HK$1.38 trillion ($177 billion) was also poured from China into Hong Kong, where capital markets have been revived."The next leg of the bull run will likely be driven by fundamental improvements and earnings growth," said Xia Fengguang, fund manager at Shenzhen Rongzhi Investment.Like others, he is supportive of Beijing's campaign against industrial overcapacity and price wars, referred to as its anti-involution drive, betting it can improve corporate margins.ANTI-INVOLUTIONValuations of industrial stocks are also attractive, fund managers say, and they are helping to draw investment."Cyclical stocks are relatively cheap, so you can start building positions when prices are weak as anti-involution policies gradually take root," fund manager Wang An said. Over the past three months, 13.5 billion yuan ($1.91 billion) in net inflows entered ETFs tracking the CSI Battery Thema...

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