Even as local Chinese investors have chosen a cautious approach to bet on the mainland markets, international investors are investing heavily into the Chinese stock markets.
According to a report from research firm EPFR Global, an inflow of $16.6 billion was seen into Chinese stock funds in foreign investments in January. This marked the fourth time that investments of more than $10 billion have been made in Chinese stocks in a month since the beginning of the Covid-19 pandemic.
According to the figures, net inflows totaled roughly $11 billion in December.
“Investor interest in China has actually strengthened coming into the fourth quarter of last year,” Cameron Brandt, director of research at EPFR, said in a phone interview last week. “The driver there I think is a perception — especially among institutional investors — that in the emerging markets space, China is, for a variety of reasons, something of a safe play this year.”
Institutions are purchasing now, instead of retail investors, who have been less interested in China since early last year, according to Brandt.
The differential interest comes at a time when global investment firms have become more bullish on mainland Chinese stocks in recent months.
Analysts believe Beijing is counting on growth in the year that the ruling Chinese Communist Party will elect its new leaders at a national conference in the fall. President Xi Jinping is anticipated to be re-elected for a historic third term at the same conference
“Everything will need to look quite to perfection for [such] a monumental event,” Jason Hsu, chairman and CIO of Rayliant Global Advisors, said in a phone interview last week. “For anyone who is a rational investor, this is probably as favorable a sentiment as you’re going to get.”
Since the domestic Chinese market is moving into a phase of the stimulus and looser policy compared to the US Federal Reserve starting a tightening cycle, therefore the Chinese market has also become a “good contrarian play” this year, according to Hsu.
Goldman Sachs and Bernstein are so bullish on mainland Chinese stocks, popularly known as A-shares, that they have produced long studies in the last few weeks promoting them.
Despite concerns that regulatory uncertainty has rendered those equities “uninvestable,” the bullish calls continue.
“We believe China A shares, a US$14tn asset class, have become more investable given the ongoing liberalization and reform measures in the Chinese capital markets,” Goldman’s chief China Equity Strategist Kinger Lau and his team said in an 89-page report Sunday.
Beijing has cracked down on alleged monopolistic tactics by Chinese internet businesses and property developers’ heavy debt dependency, among other difficulties, in the last 18 months. Global investors have been stunned by the sometimes unexpected policy changes.
In the interim, according to EPFR data, global developing markets funds have turned to India.
“Managers of funds who run diversified funds, they’re less enthusiastic about China, certainly relative to other markets,” Brandt said.
According to Brandt, the average allocation to China has decreased from 35 percent of the portfolio in the third quarter of 2020 to 27 per cent as of January 1. During the same time span, the fund’s allocation to India increased from 8.5 per cent to 12.7 per cent, according to him.
(Adapted from CNBC.com)