An analysis of Bloomberg data on regional allocations by some of the largest active Asian equity funds shows most are reducing exposure to Indian equities and adding Chinese stocks in recent months.

While DeepSeek has helped accelerate the flows into China, possible upcoming announcements of further Chinese stimulus remain important as well, according to Andrew Swan, head of Asia ex-Japan equities at Man Group.

“We think policy will now shift toward consumption, and a targeted attempt to encourage the currently high levels of savings to be deployed,” said Swan. The Man Asia Ex-Japan Equity fund he manages increased its China exposure to 40% from 30% in the past year while trimming its India exposure to 18% from 21%.

A complete reversal in fund flows is unlikely, with India stock bulls including Morgan Stanley saying the recent correction may be overdone and the nation’s long-term growth story remains intact.

Meanwhile, the additional 10% tariffs imposed on China by Trump have reinforced Amundi SA’s neutral stance on Chinese equities, according to Asia senior investment strategist Aidan Yao. “While a truce is possible as the two sides converge in trade talks, the external dynamics will remain fluid and challenging for China in the foreseeable future.”

There’s also skepticism among traders who have been burned by failed China rallies in the past. Some have pointed to crowded trading and increasing valuations as reason for caution.

Helen Zhu, chief investment officer at Nan Fung Trinity HK Ltd., sees uncertainty over whether DeepSeek’s AI success can be repeated. “At the end of the day, you don’t really know what the potential monetization opportunities are over the medium to longer term,” she said.

Nonetheless, there’s a palpable buzz of “China’s back” in the markets of late. The positives keep piling up, with Alibaba adding $100 billion in market value over the past five weeks and the Hang Seng Tech Index entering a bull market.

“The DeepSeek news was a well-timed and impactful catalyst that market participants were able to build a case for a reentry” into Chinese markets, said Nicole Wong, a portfolio manager at Manulife Investment Management. “From a tactical standpoint, we think it makes sense to be taking advantage of this momentum.”

–With assistance from Chiranjivi Chakraborty, Abhishek Vishnoi, Mary Nicola and Joanne Wong.

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