Global hedge funds have increased their holdings of Chinese equities for the fourth consecutive week, joining a wave of investors anticipating a market rebound.

The recently underperforming stocks in the world's second-largest economy have been rallying since February as Beijing has ramped up measures to address economic challenges and as macroeconomic data has shown signs of recovery.

Hedge funds have purchased Chinese stocks in seven out of the past eight weeks, according to a note from Goldman Sachs' prime brokerage team, as reported by Reuters on Tuesday. The report did not disclose the total amount of these purchases.

China's markets have unexpectedly outperformed major global markets so far this year, with Hong Kong's Hang Seng Index up by a third from its lowest point in January. The MSCI China index has risen 16% year-to-date.

On Monday, Goldman Sachs raised the price targets for both MSCI China and China's blue-chip CSI 300 Index.

Some hedge fund investors are betting on the rally by buying call options, aiming to capitalize on bigger gains from the rise in stocks, according to a separate note from Goldman Sachs.

"The combination of decade-low allocations to China from both hedge- and long-only mandates and the blistering pace of the recovery has caught investors off-guard in the past months," analysts led by Kinger Lau wrote.

"The resulting performance pressures may have incentivized investors to close underweight gaps or raise exposures in Chinese stocks, likely reinforcing and fueling the upturn as the positive spiral takes hold."

In its most recent moves to restore market confidence, China last week initiated 1 trillion yuan ($138 billion) in stimulus bond issues and unveiled a series of measures to support the country's struggling housing market.

Yet not all investors are convinced by the recovery narrative.

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