Some foreign investors returned to China’s battered stock and bond markets in May as Beijing stepped up efforts to stimulate the economy following months of COVID lockdowns and heightened global political tensions.
Even as tough anti-virus restrictions persisted, foreign investors bought a net $2.5 billion worth of beaten-down China-listed shares last month, the biggest tally in four months, according to data from Refinitiv Eikon and the Hong Kong stock exchange.
In the bond market, China saw a net inflow of $2 billion in May, according to data from the Institute of International Finance (IIF). If confirmed by China’s official data, it would snap a three-month streak of foreign outflows.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said China is among his preferred markets in Asia due to the recent easing in COVID-19 restrictions, government stimulus measures and lower stock valuations.
Shanghai ended a two-month virus lockdown on June 1, and the Chinese capital Beijing has also eased COVID-19 restrictions, as policymakers shift their focus back to growth to pull the economy out of a tailspin, though analysts say it could take months for the economy to get back on more solid footing.
Expectations of the policy shift helped drive an 8 per cent rebound in China’s blue-chip CSI 300 index over the past month.
Fears of possible Western sanctions against China, triggered by Russia’s military operations in Ukraine, have also receded. Such worries, caused by Beijing’s friendship with Moscow, contributed to “unprecedented” capital outflows from China in the first quarter, according to IIF.
GRAPHIC: Foreign flows into Chinese stocks via Stock Connect (https://graphics.reuters.com/GLOBAL-MARKETS/jnvwezddnvw/chart.png)
According to Refinitiv data, Chinese companies’ earnings are estimated to grow 12.42 per cent in 2022 despite fallout from its lockdowns, higher than Asia’s average growth of 10.9 per cent.
Chinese companies’ forward 12-month price-to-earnings ratio is at 9.62, the second lowest in Asia after South Korea, prompting some investors to think about bargain hunting.
Chinese shares faced cumulative foreign outflows of $465 million in the first five months of this year, much smaller than India’s $20.1 billion, Taiwan’s $24.8 billion and South Korea’s $11.3 billion.
Goldman Sachs said geopolitical tensions and COVID restrictions don’t fundamentally change the equation of whether to invest at all in the world’s second biggest equity market.
However, the Wall Street bank said that over the past year, there has been rising demand for global investors to diversify away from China, or better manage China-related risks.
(Reporting By Patturaja Murugaboopathy, Gaurav Dogra; Additional reporting by Samuel Shen and Jason Xue in Shanghai; Editing by Vidya Ranganathan and Kim Coghill)