Chinese stocks gain favour with foreign funds as bullish economic forecasts attract inflows of US$9 billion

Global funds bought more than 60.3 billion yuan (US$9 billion) of A shares through the Stock Connect in the first two weeks of this year, the most since at least 2018
The CSI 300 Index jumped 2.4 per cent last week, taking the year-to-date gains to 4.8 per cent

China stock market

Jiaxing Li

Published: 7:30am, 16 Jan, 2023

Why you can trust SCMP

Foreign funds are snapping up Chinese stocks at the fastest pace in at least five years in anticipation of a boost in the market from the country’s post-pandemic economic recovery.

They bought 60.3 billion yuan (US$9 billion) of A shares through the Stock Connect in the first two weeks of this year, the largest new year net buying since at least 2018, according to data compiled by Goldman Sachs. The purchases amounted to nearly 70 per cent of the net inflows totalling US$13 billion in all of 2022, the US bank said.

“China’s mainland equity market is one of our top ideas in 2023,” analysts at KraneShares, a New York-based asset management firm, said in a report on Wednesday. The market is still under-owned after the massive sell-off in 2022, and pent-up consumer demand may produce a “coiled spring” effect in earnings growth and expectations, it added.

11:31

As mainland China reopens, what is the market outlook for the mainland and Hong Kong?

The CSI 300 Index, which tracks the largest onshore companies listed in Shanghai and Shenzhen, jumped 2.4 per cent last week, taking the year to date gains to 4.8 per cent. China began dismantling its zero-Covid policy last month and pledged to focus on growth. Overall, the index has surged 16 per cent since hitting a low in October.

Major global investment banks have recently become increasingly bullish on Chinese equities, saying there is more room for the market to run, with ebbing Covid-19 infections and more supportive policies to help debt-laden developers and tech companies.

Morgan Stanley earlier this week lifted the target for CSI 300 index this year by 13 per cent. Similarly, BNP Paribas said onshore-listed companies will extend the rally and catch up with the 45 per cent surge of their Hong Kong-listed peers since end-October.

“Onshore sentiment was suppressed by the rapid spread of Covid infection” during the past few weeks, Jason Lui, head of East Asia Strategy at BNP Paribas said in a research note on Thursday.

“As the Covid situation begins to stabilise in larger cities, onshore sentiment could improve as investors anticipate more support measures for consumption,” he added.

Visitors sample Kweichow Moutai liquor at a food and drinks fair in Chengdu. The liquor maker’s stock has drawn massive interest from overseas funds this year. Photo: AFP

China’s households have accumulated a record high excess savings of 5.9 trillion yuan over the past year amid Covid restrictions and the property market downturn, Bank of America economists including Helen Qiao said in a research note on Friday.

More than 1 trillion yuan of the cash hoard will be unleashed in 2023, powering “a faster and sharper [stock market] rebound than the rest of Asia”, they estimated.

Consumer staples such as liquor makers Kweichow Moutai and Wuliangye Yibin were the most sought after onshore stocks among global investors, drawing a net inflow of more than 8 billion yuan so far this year, according to Stock Connect data.

Other top picks include battery maker Contemporary Amperex Technology and solar panel producer Longi Green Energy Technology, which drew 5.3 billion yuan and 3.5 billion yuan, respectively, of net buying during the period.