Global funds are returning to China’s onshore stock market in full force as the nation emerges from Covid restrictions and pivots to pro-growth policies.
(Bloomberg) — Global funds are returning to China’s onshore stock market in full force as the nation emerges from Covid restrictions and pivots to pro-growth policies.
Offshore investors added about $2 billion in mainland shares Friday alone via trading links with Hong Kong, the largest daily tally in two months, according to data compiled by Bloomberg. Foreigners have boosted holdings by $23.7 billion since the end of October, the month they offloaded $8.5 billion in the largest outflow since March 2020.
The flows add to growing optimism that China’s reopening will allow the nation’s shares to outperform the region, and perhaps the world as developed economies buckle under the fear of a recession. While the reopening has delivered a bigger boost so far to Chinese shares trading in Hong Kong, brokerages also see increased interest in mainland equities.
Hedge funds and long-only money managers are looking for A-share ideas after the asset class underperformed offshore peers during a sharp rebound that followed China’s decision to scrap the Covid Zero strategy, Morgan Stanley’s quantitative strategists including Gilbert Wong wrote in a note dated Jan. 11.
Wong’s team added they “recently started to hear more investors looking for A-Shares ideas as they are thinking of a potential risk of mild market correction or believe A-Shares might catch up the offshore equity,” citing the firm’s marketing feedback.
January is on track to see the biggest monthly buying since June. Foreign purchases helped push the CSI 300 Index, a benchmark of mainland equities, up 1.4% on Friday. The gauge has risen 16% since its low in October, when the gauge fell to its lowest since 2019. The Hang Seng China Enterprises Index has rallied about 50% during the period.
Morgan Stanley strategists said a rebalancing for China opening is clearly underway among offshore mutual funds, with large-cap consumer names capturing the majority of A-share inflows.
Read: China Stock Traders Bet Consumption Will Supercharge 2023 Rally
The December-quarter earnings season has also begun on a positive note, with battery giant Contemporary Amperex Technology Co. reporting higher-than-expected preliminary earnings on Thursday.
The CSI 300 index is trading at 11.7 times its one-year forward earnings estimate, which is less than the five-year average of 12.4 times, at a time when consensus earnings estimates have begun to rise, according to Bloomberg data.
The mainland-listed shares “can catch up as global investors feel more confident in China’s economic recovery, which should keep northbound flows strong in the coming months,” Bloomberg Intelligence Strategist Marvin Chen said.
(Updates to add Friday’s northbound flows and market performance.)
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