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China stock market

Foreign investors snap up battered Chinese stocks as trade war fears persist among local traders

Overseas buying hits US$4.3 billion in past three weeks

PUBLISHED : Wednesday, 08 August, 2018, 3:00pm
UPDATED : Wednesday, 08 August, 2018, 4:49pm

The turbulence on China’s stock markets, currently the world’s worst-performing, has done little to scare off overseas investors who have been net buyers of equities on the mainland’s exchanges every day for the past three weeks through the exchange links, or Stock Connects, with Hong Kong.

Overseas buying totalled 29.4 billion yuan (US$4.3 billion) during the period, according to Bloomberg data.

The active buying stands in sharp contrast with the sell-off by local traders, who remain worried that a trade dispute with the US and financial deleveraging will erode corporate earnings.

The benchmark Shanghai Composite Index (SCI) remains down 17 per cent this year, slipping very much into what is considered bear market territory.

Selling by Chinese investors has failed to slow even after top government leaders pledged more spending on infrastructure projects and fine-tuned monetary policies in a shift last month to put a floor on economic growth.

The SCI slid to its lowest level in 29 months on Friday.

But consumer stocks still seem to be the darlings of foreign investors. Companies including Kweichow Moutai, Wuliangye Yibin and Midea Group top the daily most-active list in the Connect programmes, according to data from the Hong Kong exchange.

Beer or baijiu? China’s drinkers become more quality conscious

JPMorgan Asset Management is taking advantage of the recent shake-out to add its holdings in Chinese distiller stocks, betting that consumption upgrades and consolidation in the liquor industry will continue.

“The sector slightly underperformed the market due to concerns of a future growth slowdown as a result of a high base for the second half,” said Eric Bian, emerging markets and Asia-Pacific equities specialist at JPMorgan.

The [consumer] sector slightly underperformed the market due to concerns of a future growth slowdown as a result of a high base for the second half
Eric Bian, emerging markets and Asia-Pacific equities specialist at JPMorgan Asset Management

“The sector’s fundamentals, however, remain decent. Taking [traditional Chinese clear liquor, or baijiu, maker] Maotai as an example, the retail price of its key product has been steadily increasing, indicating strong end demand, despite a recent slowdown in general consumption.”

Kweichow Moutai fell 1.5 per cent to 676.22 yuan in Shanghai on Wednesday, below its 200-day moving average of 705.89 yuan.

Are Chinese investors abandoning favourite stock pick Kweichow Moutai?

The Shanghai Composite finished the day 1.3 per cent lower at 2,744.07. The index rallied 2.7 per cent on Tuesday for the biggest single-day gain in more than two years after China Daily reported the government will unveil more policies to boost investment and the securities regulator approved new retirement fund products to invest in stocks.

Some Chinese investors look as if they are starting to realise they may have been too pessimistic on domestic stocks.

HFT Investment Management, a Shanghai-based money manager, said there was limited room for further declines as valuations were cheap, and relatively loose monetary policies as well as more proactive fiscal policies were set to be implemented going forward.

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