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Chinese business & finance

Foreign investors unwind $33bn bet on China growth rebound

Almost 90% of money that flowed into Chinese stocks in 2023 has left amid concern about economy

Hudson Lockett and Cheng Leng in Hong Kong YESTERDAY

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Nearly nine-tenths of the foreign money that flowed into China’s stock market in
2023 has already left, spurred by mounting doubts about Beijing’s willingness to
take serious action to boost flagging growth.

Since peaking at Rmb235bn ($33bn) in August, net foreign investment in China-

listed shares this year has dropped 87 per cent to just Rmb30.7bn, according to
Financial Times calculations based on data from Hong Kong’s Stock Connect
trading scheme.

Traders and analysts said the reversal reflected pessimism over the outlook for the
world’s second-largest economy among global fund managers. International
investors have been persistent net sellers since August, when missed bond
payments by developer Country Garden revealed the severity of a liquidity crisis in
the country’s property sector.

“The confidence issue goes beyond real estate, although real estate is key,” said
Wang Qi, chief investment officer for wealth management at UOB Kay Hian in
Hong Kong. “I’m referring to consumer confidence, business confidence and
investor confidence — both from domestic and foreign investors.”
Chinese shares have continued to underperform global peers in recent weeks
despite a run of positive economic data, signs of a thaw in US-China relations and
moves to give the financial system a stronger buffer against slowing growth by
cutting the rates most lenders pay on deposits.

Yet in contrast to a 4.7 per cent rise by the S&P 500 index this month, China’s
benchmark CSI 300 index of stocks listed in Shanghai and Shenzhen has fallen
more than 3 per cent. Net foreign sales of China-listed shares have reached about
Rmb26bn in December.

“It’s so counterintuitive — the data is getting better and the general environment
should be quite positive for Chinese stocks,” said Alicia García-Herrero, chief Asia-
Pacific economist at Natixis. “Frankly there’s no reason for this other than
investors basically giving up and saying: ‘We don’t see the upside’.”

The exit by offshore investors has been facilitated by widespread share buybacks
from listed companies in China and by large-scale purchases from domestic
investment funds and state-run financial institutions — all of which are under
pressure from Beijing to prop up sagging valuations.

The protracted foreign sell-off threatens to end the year on a sour note for Chinese
markets. When markets close on Friday, they are set to record the smallest annual
foreign inflow since 2015, the first full year of the Stock Connect programme. The
cross-border trading scheme, run out of Hong Kong, is the dominant channel
through which offshore investors trade mainland-listed equities.
Traders said a nascent recovery in market sentiment had been stymied on Friday
by a sharp sell-off of gaming stocks, including Tencent and NetEase, after Beijing
announced tough new regulations for the sector.

“It’s damaging for appetite,” said an investment bank trading desk head in Hong
Kong. He described the sell-off, which partially reversed on Monday, as “knee-jerk
reaction and panic selling . . . but it just shows you that sentiment is so, so fragile
now”.

Hong Kong-based traders said global long-only investors had proven particularly
wary of Chinese stocks, expressing almost no interest in the market since a surge in
buying about a year ago on hopes growth would rebound as the country emerged
from disruptive “zero-Covid” restrictions.

Global investor perceptions of Chinese equities deteriorated substantially in the

second half of this year, as pledges of policy support in July were quickly followed
by missed payments at Country Garden and other cash-strapped developers.

A survey of Asia-focused fund managers by Bank of America conducted this month

showed a majority were underweight Chinese shares — unchanged from
November. The CSI 300 is set to close out the year down more than 15 per cent in
dollar terms.

“The question I get from clients [about Chinese equities] is ‘Which sectors?’” said
García-Herrero at Natixis. “But when they push me, I don’t know what to tell them,
because there is no sector.”
Copyright The Financial Times Limited 2023. All rights reserved.