(Bloomberg) -- Global funds’ underweight position in Chinese equities may have reached a bottom as foreign inflows return, according to UBS Group AG.

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While emerging market funds reduced their overall China holdings by 2.9% in the first quarter, “this may be bottoming as the market has since seen a recovery, particularly in April,” strategists including Karen Hizon wrote in a note Tuesday.

READ: UBS Lifts Chinese Stocks to Overweight in Rare Upgrade Call

There is a growing view that the worst may be over for Chinese equities as cheap valuations, better macro data and Beijing’s supportive policy stance draw global funds. UBS’s view echoes that of a recent note by HSBC Holdings Plc, which said that global emerging market funds have turned neutral on mainland Chinese shares.

Several of the nation’s major stock gauges have entered into technical bull markets in recent weeks, with Hong Kong’s benchmark Hang Seng Index notching a 10-day winning streak before retreating on Tuesday. Foreign funds have also boosted holdings of onshore Chinese shares for a third-straight month in April via trading links with the financial hub.

While the momentum has continued into May, some money managers have cautioned that the recent outperformance in Hong Kong shares may not be backed by fundamentals. Chinese firms delivered a “sizable miss” in first quarter earnings, Morgan Stanley said, though results show a sequential improvement from the previous three-month period.

“The sustainability of the recovery depends on policy execution and continued evidence of profit delivery,” Goldman Sachs Group Inc. strategists including Sunil Koul wrote in a note dated May 5.

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