The manifold action hasn’t stopped cash pouring into China

Yet money from around the world is flowing into mainland China – testament to its gravitational pull on global investors and long-term confidence in its economy.

Amid the turmoil in the markets, foreign investors have increased their holdings in Shanghai and Shenzhen via trading links every month since November, according to Bloomberg calculations based on data from the Hong Kong Stock Exchange.

Only then could he be expected to back down, as officials blocked the Ant Group company’s initial public offering, marking the start of a regulatory onslaught.

Last month’s purchases more than doubled compared to July, and it’s a similar picture in China’s bond market. International investors seeking additional yields have increased their portfolios of yuan-denominated government debt to a record low, according to central bank data during July.

For every pundit declaring the dangers of investing money in Chinese assets, there is another ready to “buy the dip”. China maintains long-term expansion.

“We feel that recent regulations are aimed at streamlining the future structure of economic growth toward higher quality growth and more balanced growth,” said Chris Liu, a senior at China Equity at Invesco Hong Kong Ltd. Portfolio Manager “China is only playing catch-up with the developed world after years of loose regulatory oversight.”

To be sure, investors have suffered significant losses this year, and there may be more to come.

The country’s benchmark CSI 300 index is down nearly 16% from its February high, making it one of the worst-performing key gauges in Asia this year. And the move to make tutoring a non-profit sector in July sent shock waves that wiped $1 trillion from the value of Chinese stocks globally.

According to data based on the Bloomberg calculation of the Hong Kong Stock Exchange, even during the 10-month inflow, there has been a sharp reversal. While foreign investors bought 26.9 billion yuan ($4.2 billion) worth of mainland shares in August, the most in three months, they sold a net 11 billion yuan on both August 19 and 20.

The offloading came amid signs that the Federal Reserve may begin to provide incentives and sparked a series of comments and reports in China’s state media calling for tighter oversight to protect consumers.

Analysts at Everbright Securities Co., including Annie Mack, said this exemplified the risks that remain, even though they expect corporate earnings growth to continue to support the market.

Data from Bloomberg shows that the CSI 300 is now trading near its lowest ratio compared to the S&P 500 index since 2007, which supports the possibility of further buying.

After two months of withdrawal, inflows into China-focused equity-related exchange traded funds have also turned positive. The rally in the market by influential funds like Kathy Wood’s Arch Investment Management has further supported the sentiment.

Bloomberg data shows inflows to Hong Kong-focused passive funds have been positive this year. An ETF that tracks the Hang Seng Tech Index, which includes China’s largest technology companies, is the most popular of these Hong Kong-focused vehicles on the market this year.

loan case

By acting as a natural hedge for investors seeking long-term bets, the strength of China’s currency is playing a role in the attractiveness of the country’s stocks and bonds.

Although the yuan has moved significantly sideways in recent months, it advanced about 1% against the dollar in 2021 and about 6% over the past three years.

With China’s benchmark 10-year yield more than twice that of the US Treasury, and its debt playing a large role in global indices, foreign buyers raised their holdings of the country’s sovereign debt to 2.18 trillion yuan, according to data from ChinaBonds. Is. July.

According to the Bloomberg Global Treasury Benchmark Index, this has helped it deliver the best returns to investors on a year-over-year basis among debt-market rivals.

Analysts expect the Federal Reserve to reduce its bond purchases as yield gains on the US will ease, but not enough to curb demand given the entry of Chinese bonds into the global index.

“Despite further lowering, the onshore yuan’s interest rate premium remains heavy, and will continue to reduce foreign investment in Chinese bonds,” said Becky Liu, head of China macro strategy at Standard Chartered plc in Hong Kong.

For Pascal Blanc, chief investment officer of Amundi SA, whose firm oversees $2.1 trillion globally, the shakeup in China is opening new doors.

“On China, we retain our long-term positive call and believe the recent weakness has opened up interesting opportunities,” Pascal and his colleagues said in a note this month. “Investors can take advantage of the sell-off to increase their allocation in Chinese equities. Global portfolio.”