Last bull abandons Chinese stocks as global fund managers turn from net buyers to sellers

Enough is enough and the last bull in China’s stock market has thrown in the towel.

Foreign investors, who were net buyers of Chinese stocks every month except February since 2017, have been dumping the mainland’s yuan-denominated shares daily in October through the exchange links with Hong Kong.

While local Chinese traders have shunned equities, sending the Shanghai Composite Index down by 22 per cent this year, overseas investors have maintained, until now, a strong interest, with global index compilers MSCI and FTSE Russell adding Chinese stocks to their benchmarks. Global fund managers bought a combined 277.5 billion yuan (US$40 billion) of mainland Chinese stocks, known as A shares, via the stock connect programmes in the nine months through September this year, according to Bloomberg data.

But foreign appetite for Chinese stocks quickly waned this month, as rising yields on US Treasuries and the outlook of interest rate increases by the Federal Reserve rattled financial assets worldwide from equities to emerging-market currencies.

“There’s definitely the risk of foreign capital outflows out there in the short term,” said Min Liangchao, a strategist at HSBC Jintrust Fund Management in Shanghai.

“Overseas funds will systemically reduce global allocations of stocks, because of the rising US Treasury yields. A shares are no exception.”