Overseas investors dump Chinese stocks worth US$14 billion at fastest pace ever, but analysts say outflow is temporary

Overseas investors have dumped a record 100.4 billion yuan (US$14 billion) worth of Chinese stocks over the past month amid a global pullback from riskier assets, as markets continue to be roiled by the unfolding Covid-19 pandemic. Analysts said the trend is likely to be temporary.

The outflow from A shares through the Stock Connect programme that links Hong Kong and mainland Chinese markets was the fastest since the link was launched in 2014, according to data by Wind. Net selling gathered pace in late February, when the European and US markets were starting to tumble, and extended to its seventh consecutive trading day on Thursday. The outflow reached a daily record of 14.7 billion yuan on March 13.

The sell-off, however, comes after years of steady overseas capital inflows, and is likely to be temporary, analysts said. “Foreign funds are retreating because they need liquidity to cover their positions in their domestic markets,” said Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management. “Once [European and US] markets stabilise, the capital will flow back to the A-share market.”

The last – and only other – time China’s markets suffered a significant outflow was between March and June 2019, when an escalation in the US-China trade war scared off global investors. Even then, the net outflow was only about 72 billion yuan over the course of three months. A total of 974 billion yuan in foreign capital has flowed into the A-share market since the Stock Connect’s launch.

Investors around the world are currently pulling out of equity based funds after wild swings and brutal losses in global stock markets, which wiped out US$23 trillion, or 26 per cent, in market capitalisation over the past two weeks, according to the MSCI All-Country World Index.

Among the most dumped stocks recently are Chinese banks, insurers and energy companies. Consumer stocks, a long-time favourite of foreign traders, also experienced a sell-off. Air conditioner maker Midea Group, which was the first Chinese stock to reach the 28 per cent foreign ownership cap in January, has seen that ratio drop to 26 per cent.