The public screen displays the figures of the Shenzhen Stock Exchange and the Hang Seng Index in Shanghai, China, on Monday, February 7, 2022.
Whole Shen | Bloomberg | Getty Images
BEIJING – International investors are investing more in Chinese stocks, even as local investors remain cautious in mainland markets.
According to research firm EPFR Global, mainland China’s equity funds received a net inflow of $ 16.6 billion in January – only the fourth time since the pandemic, when monthly inflows exceeded $ 10 billion. Data showed that net inflows in December were nearly $ 11 billion.
“Investor interest in China actually picked up in the fourth quarter of last year,” Cameron Brandt, EPFR’s director of research, said in a telephone interview last week. “I think the guiding factor is the perception – especially among institutional investors – that in emerging markets, China for a variety of reasons is something of a safe game this year.”
Brandt said the latest wave of purchases is coming from institutions, not retail investors, whose interest in China has declined since the beginning of last year.
Different interest comes as global investment firms are becoming more positive on the stocks of mainland China over the past few months.
Analysts are partly betting that Beijing wants to ensure growth in a year, when China’s ruling Communist Party elects its next leaders at a national congress in the fall. At the same meeting, the President Xi Jinping an unprecedented third term in power is expected.
“Everything has to look perfect [such] “A monumental event,” Jason Hsu, chairman and CIO of Rayliant Global Advisors, said in a telephone interview last week. “For those who are a rational investor, it’s probably as favorable a feeling as you’re going to get.”
China has also become a “good opposite game” this year because the local market is entering a period of stimulus and easier policies, while US Federal Reserve proceeds to a puff cyclesaid Hsu.
Goldman Sachs and Bernstein are so optimistic that each of them has published lengthy reports over the past few weeks with recommendations of mainland China’s stocks, also known as A-stocks.
Optimistic calls are coming, despite concerns about how regulatory uncertainty could make these stocks “unfit for investment”.
“We believe that China’s A stock, an asset class of $ 14 billion, has become more appropriate given current liberalization and reform measures in Chinese capital markets,” said Goldman’s chief Chinese equity strategist Kinger Lau and his team at 89- page report on Sunday. .
For the past 18 months, Beijing has gone on repression the alleged monopolistic practice of Chinese Internet companies and high dependence of developers on debt, among other issues. Sometimes drastic policy changes have surprised global investors.
At the same time, funds from global developing countries have turned to India, according to EPFR.
“Fund managers who manage diversified funds are less enthusiastic about China, of course, compared to other markets,” Brandt said.
According to Brandt, average allocations to China fell from 35% of the portfolio in the third quarter of 2020 to 27% on January 1. Over the same period, he said, India’s allocation increased from 8.5% to 12.7%.
Market pessimism in China
Although mainland China’s stock market is the world’s second largest in price, it differs significantly from the US, the world’s largest.
Speculative retail investors, rather than institutions, dominate the mainland market, which for years has been compared to casinos.
But there were signs of progress.
As a sign of how the market is maturing, the index giant MSCI has decided in 2018 to add several shares of China A to the standard MSCI Emerging Markets Index. The move has forced international funds tracking the index to buy more A shares. But retail investors still dominate the mainland market.
Our overall view this year, [the] The Chinese market is not a simple bull market. Most likely, buy with hope and sell based on facts and results.
Chinese capital strategist, Bank of America Securities
Weak sentiment on land along with better opportunities in developed markets have contributed to JP Morgan Asset Management’s neutral view of Chinese stocks since early last year, Sylvia Sheng, the firm’s global strategist for several assets, said in a telephone interview Monday.
She said that if growth improves in the second quarter, sentiment may also change, noting: “We are actually trying to get more positive on Chinese stocks.”
The Shanghai Composite rose about 3% in February to date after a week-long closing on New Year’s Eve. The index started the year with a decrease of 7.65% in January – its worst month since October 2018. Last year, the index posted relatively subdued growth of 4.8%.
Everyone’s sentiment about investing in stock A has declined significantly, Schelling Xie, a senior analyst at Stansberry China, said in a telephone interview on Friday. He pointed to uncertainty about the extent of changes in regulation and economic growth.
Although some economists say the worst of China’s regulations is over, they also said it did not mean repealing or ending the new rules.
The market will need time to restore confidence, but now should not be too pessimistic, said in a note Xuan Wei, chief strategist at China Asset Management. He added that there are opportunities in new energy reserves and technological growth.
China has opened up to foreign finance
While analysts are assessing the performance of Chinese stocks, the mainland market is increasingly offering business opportunities to international investment companies.
The financial industry is one of the few industries in which Beijing has eased restrictions on property in the last few years. Policy changes have allowed BlackRock, Goldman Sachs and UBS among other things, to buy full control of their local securities or mutual fund operations.
“One of the reasons we’re in the mood is that we’re working in an area where China has really opened up on a large scale,” said Brendan Ahern, KraneShares ’chief investment officer. The firm sells one of the major exchange-traded funds in the United States that tracks Chinese online stocks, KWEB.
“In general, I think there is a disparity between what the Chinese think about China and what foreign investors think about China,” Ahern said.
KWEB grew 3.8% in the year after falling more than 50% in 2021. Hong Kong Hang Seng Index has grown by about 5.5% since the beginning of the year, while Shanghai Composite decreased by about 4.7%.
Foreign investors tend to “like to buy China for growth” rather than banks and other industries with more state-owned enterprises, said Winnie Wu, Chinese capital strategist at Bank of America Securities.
However, she noted that state-owned enterprises have recently been ahead of the lead, and this trend, which she doubts, could lead to sustainable market growth.
“Our common opinion this year, [the] The Chinese market is a difficult bull market, “she said.” Most likely, it will buy on hope and sell based on facts and results. “