Global hedge funds flocked to Chinese equities on the back of Beijing's much bigger than expected stimulus measures, leading to the strongest weekly buying on record, a note from Goldman Sachs showed.

Hedge funds "sharply" accelerated their allocation to the world's second-largest economy, with purchases of Chinese equities in the week of Sept. 23-27 reaching their highest since Goldman Sachs records began in 2016.

The inflow was led by long positions, particularly into single stocks, with buying focusing on consumer, industrials, financials and information technology, the bank's prime brokerage team said in a report this week.

Energy was the only sector marginally sold by hedge funds, according to the bank.

Chinese stocks roared back and enjoyed their best weekly gain in over a decade after the government announced a broad stimulus package including interest rate cuts and a $114 billion war chest to boost share prices.

The market frenzy continued this week as first-tier cities rushed to lift home purchase restrictions over the weekend.

Benchmark CSI 300 and Shanghai Composite topped their biggest single-day gains since 2008 on Monday.

The sharp rally helped China-focused stock picking hedge funds post a 6% return last week, their best weekly performance on Goldman Sachs' record. So far this year, these hedge funds are estimated to have gained 12.8%.

While underweighting Chinese equities had been the largest consensus trade for the past few years amid the gloomy economic outlook and geopolitical tensions, the tide is turning, investors and analysts say.

Not only hedge funds or speculators, many foreign long-term investors now fear missing out.

According to LSEG Lipper data, foreign equity exchange-traded funds (ETFs) focusing on Chinese equities received inflows of $2.4 billion in the last three trading sessions of September, a sharp contrast to $2.7 billion in outflows from the start of the year to Sept. 25.

"We have seen a substantial pick up of buying interest in Chinese equities into National Day holiday. This is encouraging and suggests a potential shift in sentiment of global investors towards China after a long period of outflows," said Wee Khoon Chong, senior markets strategist for APAC at BNY, whose custodian service tracks $49.8 trillion in assets.

Foreign long-term investors showed a significant turnaround of sentiment with strong buying starting Thursday, Mr. Chong added.