Foreign investors unwind $33bn bet on China growth rebound

The stock market in China had received a flow of foreign money but nine-tenths of it left in 2023 and doubts are pointing toward Beijing’s willingness to take appropriate action to increase drooping growth. According to Financial Times calculations on data collected from Hong Kong’s Connect Trading Scheme, in August 2023, China arrived at a peak of $33bn but net foreign investment in country shares has decreased around 87% and reached Rmb30.7bn. 

According to analysts and traders, the rebound is the after-effect of pessimism about the perspective towards the world’s second-largest economy among international fund managers. Global investors have been persisting with net sellers since August when the missed-bond payments disclosed the severity of the liquid crisis in the prosperity environment of the country. 

Wang Qi, the Chief investment officer of wealth management at UOB Kay Hian in Hong Kong says that the confidence problem is going beyond real estate where real estate is fundamental. He adds that he refers to business confidence, customer confidence, and investor confidence from domestic and international investors. 

China-listed shares are not performing like their global peers in recent weeks even if there is positive economic data, symbols of a thaw in the US-China relationship, and steps to provide the financial system with a strong buffer against the flagging growth by reducing the rates that most lenders pay on deposits. 

However, there is a 4.7% increase by the S&P 500 index this month, and the country’s standard CSI 300 index of stocks listed in Shenzhen and Shanghai has decreased to around 3%. Total foreign sales of Chinese shares reached Rmn26bn in December. Alicia García-Herrero, the chief Asia-Pacific economist at Natixis finds this to be counterintuitive as the data is getting better and overall ambiance needs to be positive for Chinese stocks. 

There is no reason for this unless investors give up and feel nothing to see the upside. Widely circulated share buybacks from China-listed companies have facilitated exit by off-shore investors. It also facilitates big-scale purchases from domestic investment funds and government financial institutions. These systems are receiving pressure from Beijing to help with flagging valuations. 

Lengthy foreign sell-offs pose a threat to end the year on a sour note. While closing markets on Friday, the smallest annual foreign inflow will be recorded. Hong Kong runs a cross-border trading scheme and is the prominent medium for offshore investors or international trade financiers to trade China-listed equities. Traders find a beginning recovery in market sentiment has been blocked on Friday through a sell-off of gaming stocks, such as NetEase and Tencent. This happened after Beijing declared new regulations for the niche. 

An investment bank trade finance desk head in Hong Kong says that this will damage the appetite. He narrated the sell-off, which started again on Monday because of the knee-jerk reaction and panic selling. He says that it can only make you understand that sentiment is very fragile now.

Traders based in Hong Kong say that global investors have established that they are suspicious of Chinese stocks, and have shown no interest in the market as a move in buying a year ago on the hope that growth would rebound since the country has come out from disruptive zero-covid restrictions. Perceptions of International trade investors on Chinese equities have dropped significantly in the middle of this year because policy support pledges in July were immediately followed by missed payments at Country Garden along with other cash-strapped developers. 

Bank of America has surveyed Asia-centric fund managers and it showed that most of the people underweight China-listed shares from November. The CSI 300 has been decided to close out the year by 15% in dollars. García-Herrero at Natixis asks where Chinese equities can get clients and he adds that even if they push him, he doesn’t know what to say because there is no such sector.