(Bloomberg) -- A shift away from Chinese equities by global long-term investors has taken a pause, with some funds getting less bearish, according to Morgan Stanley.

Outflows from Chinese equities slowed into the end of February and regional active managers started adding growth and tech stocks, strategists including Gilbert Wong and Laura Wang wrote in a March 4 note on positions by long-only funds.  

The report comes as China ramps up measures to boost confidence in its economy, with mainland stocks snapping a six-month streak of foreign outflows. The analysis shows the shift in flows may not be entirely due to Beijing stepping in to buy stocks via the “national team,” and could help allay some concerns over the sustainability of the rebound from January lows.

“The realized volatility of MSCI China surged from 20% in late December to above 30% in mid-February on an annualized basis, which made keeping a deep underweight on China a highly risky position for most regional funds,” the strategists said.

They added that Asia ex-Japan funds and emerging markets funds domiciled in the US and Europe have reduced their underweight stance on China in February. Equities in mainland China and Hong Kong saw $2.2 billion of outflows on a net basis last month — 95% of which can be attributed to investors’ redemptions — compared with $2.6 billion in January, they said, citing EPFR data.

The moderation in outflows may be an early sign that money managers are rethinking their asset allocations across the region. Some funds have begun trimming rival India’s holdings citing excessive valuations and better risk-reward elsewhere, a shift that can bode well for China to regain its lost heft in global portfolios. 

--With assistance from April Ma.

(Updates to add more context in fourth paragraph. An earlier version corrected the name of bank in headline)

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