Investors snap up Chinese equities, bonds

BEIJING: Foreign businessmen continue to increase their investments in China’s equities and bonds in a show of confidence in the country’s long-term development.

As of June 10, the Chinese A-share market has seen net inflows of foreign capital for 10 straight trading days, the longest period so far this year, according to market tracker Wind.

Last week, overseas investors put 36.83 billion yuan (about $5.48 billion) in certain Chinese shares through the Stock Connect program’s northbound leg, making it the biggest weekly increase since the beginning of the year, Wind data showed.

The number contrasts sharply with a net outflow of 45.1 billion yuan in March, when resurgences in Covid-19 infections started battering the world’s No. 2 economy.

“Foreign investment in the Chinese financial market experienced quite a few fluctuations this year,” said Monica Li, equities director with Fidelity International, which holds about $6 billion in A-shares.

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She blamed the outflows on a range of factors, including Russia’s invasion of Ukraine, United States interest rate hikes and coronavirus flare-ups in China.

But as China started easing Covid-19 restrictions in late May and exerted efforts to shore up the economy, the financial market gradually warmed up.

China has unveiled 33 detailed measures to stabilize the economy last month and its State Council ordered government departments to introduce practical measures.

Sensitive foreign funds have rushed to the Chinese financial market since then. On May 20, the inflow of foreign capital to the Chinese A-share market hit 14.24 billion yuan. On the 31st, that number reached 13.87 billion yuan.

“Within only two weeks in June, we have seen foreign investors pile up their purchasing of Chinese A-shares, with the inflow surpassing the total in May,” Li said. “That showed a sharp and swift shift of market sentiment.”

She believes China’s financial market would continue to remain attractive to foreign capital in the long run, considering the country’s sound economic fundamentals. Also, the country offers much attractive risk-reward amid increasing global uncertainties.

Christiaan Tuntono, senior economist at Allianz Global Investors, said the outlook on China’s macro condition depended on the success of the government’s ambitious plan to boost the economy.

“The government vowed to bolster growth through stronger infrastructure investment and greater policy support,” he said, adding that China was capable of achieving Beijing’s growth target of “about 5.5 percent” this year by bolstering infrastructure investments.

In the bond market, China was a shining point among emerging economies. Data from the Institute of International Finance showed that $2 billion flowed into the Chinese bond market last month, bucking the trend of foreign capital outflows in most emerging markets.

The major investment driver in the bond market lies in the demand for medium- to long-term asset allocation, with major holders being central banks, sovereign wealth funds and passive funds that track indices, said Matt Simpson, an analyst at Gain Capital.

Given that the FTSE Russell included Chinese government bonds in its World Government Bond Index, $10 billion will flow into the bond market every quarter through 2024, he added.

There is still much room for foreign investors to increase their holdings of renminbi assets further, said Wang Chunying, deputy head of China’s foreign exchange regulator.

Such assets remain highly attractive, as they have stable investment returns and could diversify portfolio risks, she added.