China-focused equity funds saw net sales worth $392 million, following outflows of $596 million in July, data from Refinitiv Lipper showed.
The data covers 2,840 China-focused funds run by overseas fund managers.
Investors in China have been rattled by a flurry of regulatory crackdowns this year targeting sectors ranging from technology to private tutoring, which have wiped out close to $1 trillion in market value since February.
"In the near term, the biggest concern is undoubtedly the potential regulatory changes that are still expected to come. Investors are anticipating what and where these changes will be," said John Lau, the head of Asian equities at wealth manager SEI.
"There will be continual volatility across the highly anticipated areas, such as real estate, banking, health care, e-commerce, but might also expand to other industries as well."
The UBS (Lux) Equity Fund China Opportunity (USD), Aberdeen Standard SICAV I - China A Share Equity Fund and Xtrackers Harvest CSI 300 China A-Shares ETF faced the biggest outflows, in excess of $200 million each last month, the data showed.
Graphic: Biggest outflows from China-focused equity funds - https://fingfx.thomsonreuters.com/gfx/mkt/movannelepa/Biggest%20outflows%20from%20China-focused%20equity%20funds.jpg
As per a Morgan Stanley survey, Kweichow Moutai Co Ltd, Contemporary Amperex Technology and Midea Group were among the top 25 China A-shares held by large offshore mutual funds.
The brokerage said global equity funds had been sellers of Chinese and Hong Kong equities this year as there were better and larger opportunities for them in U.S. equities.
"Therefore, any increase in uncertainties or unattractive valuations could quickly induce risk-off sentiment among global equity managers to rotate out from China HK equities," it said.
A deceleration in China's economic activity had also turned investors bearish. Still, to some analysts, Chinese equities look attractive after the recent sell-off.
MSCI China's forward price-to-earnings ratio stood at 13.57 at the end of last month, close to the 14-month low of 13.52 reached in July.
Graphic: MSCI China index's PE ratio -
"For active managers, 2021's general Chinese market retrenchment has provided select opportunities," said Randy Baron, lead portfolio manager at Pinnacle Advisors.
He said he had bought GDS Holdings and IMAX China during last month's slide and expects to hold both for three to five years.
"If the Chinese government targets an additional broad sector (as it did with education and then tech), we would re-consider our bullish macro position."
Graphic: Monthly flows into offshore Chinese equity funds - https://fingfx.thomsonreuters.com/gfx/mkt/gkvlggowxpb/Monthly%20flows%20into%20offshore%20Chinese%20equity%20funds.jpg
Graphic: Breakdown by country for flows into China equity funds - https://fingfx.thomsonreuters.com/gfx/mkt/movanngklpa/Breakdown%20by%20country%20for%20flows%20into%20China%20equity%20funds.jpg
(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Vidya Ranganathan and Mark Potter)
By Gaurav Dogra and Patturaja Murugaboopathy