As Beijing continues to ease covid travel rules and send other encouraging policy signals, foreign investors have been cautiously returning to Chinese equities, increasing the likelihood the bourse can sustain its bounce after months of heavy selling.
With the S&P 500 ready to close its worst first half of any year since 1970 and bonds taking a beating, China’s depressed equity markets look more attractive amid worldwide inflation, interest rate hikes and recession fears.
China’s blue-chip CSI300 index is up about 20% from its April lows, while the Shanghai Composite also rose following losses of more than 10% in the first quarter.
The gains, together with fewer lockdowns and signals that Beijing could relax both on virus policies and regulatory clampdowns, have lured back money managers who fled en-masse in March.
Those who were on the sidelines, “have shown some increase in appetite for China in the past few weeks,” said Elizabeth Kwik, investment director of Asian equities at British asset manager abrdn. “Some have chosen to add to their position.”
Foreign investors bought a net 74.6 billion yuan ($11 billion) in China-listed shares in June so far, making it the biggest monthly inflow this year, according to data from Refinitiv Eikon.
Travel and gambling stocks leapt as China cut in half the length of time travellrs must remain in quarantine to one week.
Investors hope Beijing will eventually ease its draconian zero Covid policy, and that authorities will make good on promises to support the economy.
“Covid zero policy has been mentioned as the biggest hurdle facing investors as they look to understand China’s current policy focus,” Morgan Stanley analysts said in a report. “These latest developments will help rebuild investor confidence that economic growth is being prioritised.”
Unlike the rest of the world, China has no inflation problem.
Covid curbs and the absence of the massive consumption-focused stimulus other countries have used have kept demand soft, damping inflation and allowing China’s central bank to ease policy while most of its peers have to tightening.
Senior officials have also vowed to support capital markets and growth and have eased a crackdown on once-hot sectors such as technology.
Shares in e-commerce giant Alibaba, which were pounded through 2020 and 2021, have rallied 60% from a record low in March.
Money is flowing again and sentiment has shifted.
Anatole Investment Management Ltd, a Hong Kong-based firm managing around $1.9 billion with its flagship fund, saw monthly returns turn positive for May and extend in June after a 22% drop in the first four months, people familiar with its performance said. They requested anonymity because they are not authorised to speak publicly.
Aspex Management, which manages around $7 billion, reported positive returns in April and May, according to documents, trimming losses for the first five months of the year to 14.4%. Aspex did not respond to queries.
The 20 biggest open-ended and exchange-traded funds traded in Hong Kong with Greater China equities strategy all reported positive returns last month and 17 of them grew their assets in May, according to Morningstar data.
Paul O’Connor, head of the multi-asset team at Janus Henderson in London, said China had its “capitulation” and now it was its chance to outperform.
“They have had a valuation reset and they don’t have the policy headwinds we have in other places where central banks are draining liquidity and putting up interest rates.”
- Reuters, with editing by Neal McGrath