Chinese investors turn to foreign stocks and bonds as domestic economy falters and A shares remain flat

A stronger US dollar could draw more Chinese investors, an EY partner says

‘Most investors appear to take a cautious stance on foreign investment as they expect to chase stable but safe returns’: Shanghai analyst

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Beijing had granted a total of US$162.7 billion in QDII investment quotas by the end of June, nearly double the US$85.6 billion allotted in 2012, EY says. Photo: AFP

Published: 7:30am, 19 Jul 2023Updated: 11:33am, 19 Jul 2023

Corrected [9:57am, 19 Jul, 2023]

[9:57am, 19 Jul, 2023]
Corrects story to say Howhow Zhang is an executive at EY instead of KPMG, and that the report is published by his firm.

Chinese investors’ appetite for overseas assets is growing due to concerns about a bleak outlook for the domestic economy and a woeful performance by the A-share market.

Moreover, ongoing geopolitical tensions between China and the West will not dampen mainland Chinese investors’ demand for overseas equities and bonds, according to Howhow Zhang, a partner at EY consultancy.

“US dollar-denominated assets, such as treasuries and corporate bonds, are becoming increasingly attractive to Chinese investors because of the interest rate hikes,” said Zhang, who is the firm’s wealth and asset management strategy and transactions leader for Greater China. “A stronger US dollar could draw more Chinese investors, adding lustre to existing channels such as the Stock Connect schemes.”

China’s economy expanded by 6.3 per cent year on year in the second quarter of 2023, falling short of a consensus forecast of 7 per cent made by economists, in the latest sign that a recovery driven by the country’s reopening and shift away from strict Covid-19 control measures had failed to live up to expectations.

Beijing pivoted to living with the virus in December 2022, and investors and analysts had expected manufacturing activity, consumption, fixed-asset investment and exports would see a big jump following three years of strict curbs.

Mainland regulators are likely to continue distributing licences and foreign-exchange quotas to qualified asset managers to facilitate cross-border capital flows, Zhang said.

Aside from the Stock Connect schemes that link the mainland’s exchanges with their Hong Kong counterpart, the qualified domestic institutional investor (QDII) and domestic foreign limited partner (QDLP) programmes are also expected to receive a warm response from cash-rich individuals as they allocate more capital offshore. These schemes allow institutions to raise capital from mainland investors before converting their funds into foreign currencies for the buying of overseas-listed bonds and equities.

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Chinese investors turn to foreign stocks and bonds as domestic economy falters and A shares remain flat

A stronger US dollar could draw more Chinese investors, an EY partner says ‘Most investors appear to take a cautious stance on foreign investment as they expect to chase stable but safe returns’: Shanghai analyst

A stronger US dollar could draw more Chinese investors, an EY partner says

‘Most investors appear to take a cautious stance on foreign investment as they expect to chase stable but safe returns’: Shanghai analyst