‘Chronic disappointment’: global funds make big cut in China stock allocation amid entrenched pessimism on economy, policies
- ‘Pessimism in China is all but entrenched now,’ survey shows. ‘Chronic disappointment’ has turned investors away from Chinese equities
- Expectations in Japan are even bolder, with more than a quarter anticipating double-digit returns in the next 12 months, by far the favourite market
Investors cut the amount of money set aside for Chinese equities by 12 percentage points to the lowest net underweight in more than a year, a reflection of the dire state of affairs, the January survey showed. Some 78 per cent of the survey respondents viewed a structural derating is underway versus about 50 per cent a year ago, justifying the shrinking market valuation.
The Hang Seng Index slumped 3.8 per cent in Wednesday trading, the most since a 6.4 per cent plunge in October 2022. The Hong Kong stock market’s benchmark has lost more than 10 per cent this year in its worst start to a year since 2016. Stocks in mainland China have also lost traction, with the CSI 300 Index trading near a five-year low.
“Pessimism in China is all but entrenched now,” the bank said in the report. “Chronic disappointment has turned investors away from Chinese equities.”
The BofA Asia fund survey involved 146 respondents including money managers at institutional firms, mutual funds and hedge funds overseeing US$319 billion of assets. The survey was conducted from January 5 to 11.
China has struggled to convince investors about its recovery momentum, having set lower growth targets after exiting from more than two years of pandemic. The central bank has refrained by flooding the market with liquidity, wary about knocking down the local currency, after engineering its rebound from a 17-year low.