(Bloomberg) -- Chinese stocks listed in the US has staged their best month since early 2019, as investors chase returns with American equities struggling amid mounting recession fears.

The Nasdaq Golden Dragon China Index closed up 16% in June following its 2.6% gain in May, marking its first two-month winning streak since February 2021, right before the shares started to collapse over Beijing’s regulatory crackdowns. New Oriental Education & Technology Group was among top gainers with a 56% climb, while Li Auto Inc. and XPeng Inc. each climbed more than 30%. Tech giant Alibaba Group Holding Ltd. rose 18%. 

Signals from Chinese officials on policy shifts for the tech industry and easing Covid curbs, coupled with an improved outlook for China’s economy, have helped fuel a rally in the country’s equities traded at home and abroad. The CSI 300 Index, which tracks domestic stocks, jumped 9.6% this month, coming close to a technical bull market, while Hong Kong’s Hang Seng Index climbed 2.1%.

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“Some of the best opportunities are often found in situations that go from truly awful to merely bad, and I think that process is underway in Chinese equities overall,” said Cory Lester, managing director of Morgan Creek Capital. 

The Golden Dragon Index, which is heavily weighted toward technology, has also outperformed the Nasdaq 100 Index, which lost another 9% in June. The prospect of China’s fiscal and monetary support for its economy presents an appealing alternative for global investors as US shares wobble in the face of the Federal Reserve’s aggressive tightening cycle. The broader S&P 500 Index sank 8.4% in June.

“Stars are being aligned in China equities,” said Calvin Zhang, a portfolio manager at Federated Hermes. “It is certainly a good place to consider when developed markets are grappling with recession fears.” 

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Chinese American Depositary Receipts are also benefitting from appealing valuations after tumbling more than 60% from last year’s peak. The group sold off hard earlier this year, “driven by delisting fears with no regards to fundamentals,” as investors were scared their valuations would go to zero, Zhang said. “But for those that have found a secondary listing in Hong Kong, that hedges such a risk, and they are actually looking attractive.”

To be sure, there are reasons to be skeptical about the rebound in Chinese tech shares. For one thing, there are lingering jitters that China’s zero-Covid approach could spur fresh lockdowns. And there’s the prospect of US-listed Chinese stocks being kicked off the New York exchanges, though Washington and Beijing are in talks to settle the dispute.

Investing in Chinese ADRs is a “short-term play,” said Olivier d’Assier, head of APAC applied research at Qontigo in Singapore. Over a longer horizon, investors can’t be fully confident that fundamentals will continue trump regulatory and political risks.

“Volumes in US equities have been low as most investors are on the sidelines these days, and the summer holiday months are just ahead of us,” he wrote in an email. “So, Chinese ADRs look attractive for one last punt before the summer.”

(Updates with shares at close and top gainers in the second paragraph)

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