Global funds flee China’s stock market at the fastest quarterly pace in 15 months after making outsize profits for their portfolio

Overseas investors have sold US$3.6 billion of Chinese stocks in the third quarter as the US election draws closer, Covid-19 dims growth outlook

Mainland traders increase holdings of Hong Kong stocks for three quarters in a row this year

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An electronic billboard showing the Hang Seng Index in Hong Kong on 13 March 2020. Photo: EPA-EFE

Published: 3:00pm, 30 Sep 2020Updated: 11:07pm, 30 Sep 2020

Global stock traders dumped Chinese equities by the most in 15 months during the third quarter, as they unwound their holdings of the shares that have made outsize gains for their portfolio.

International fund managers sold 24.4 billion yuan (US$3.6 billion) worth of the yuan-traded equities through the transborder investment channel via Hong Kong known as the Stock Connect, in the three months ended in September, according to Bloomberg data. That was the biggest sell-off since the second quarter of 2019, when global investors sold 29.1 billion yuan of China’s yuan-denominated A shares.

Consumer and technology stocks that have made spectacular run-up this year bore the brunt of the selling. China Tourism Group Duty Free, the nation’s biggest franchiser of duty-free shops, liquor distiller Wuliangye and Apple supplier GoerTek were among the stocks that were sold most by foreign investors, according to data by the Hong Kong exchange. Shares of the three companies have climbed at least 60 per cent this year.

“The US risk-off trade ahead of November’s US presidential election has affected onshore/offshore sentiment for Chinese equities, adding to the negative sentiment including a new wave of Covid-19 cases in parts of Europe and weakness in US high-frequency data,” said Wendy Liu, head of China strategy in Hong Kong at the Swiss bank UBS Group.

The tumult came even after the major gauges of Chinese onshore stocks are all posted gains in the third quarter and the yuan strengthened the most against the US dollar in more the two years. The risk-aversion in the run-up to the US presidential election and the angst about the resurgence of the coronavirus pandemic and the growth outlook hold sway in the mindset of foreign traders now, according to UBS.

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