Chinese securities no longer ‘must-haves’ as overseas confidence wanes

China’s stocks and bonds, long considered guarantors of stable returns, are no longer regarded as reliable prospects by foreign investors

State intervention, as well as uncertainty in the property sector, has offshore capital alarmed and the markets are moving accordingly

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China’s securities markets are looking less attractive to foreign capital as uncertainty in the overall economy flows downward. Photo: EPA-EFE

Published: 6:00pm, 12 Nov 2023Updated: 6:47pm, 12 Nov 2023

Despite China’s pledge to deepen reform in its capital markets, weak confidence in the world’s second-largest economy means the days of Chinese securities as must-haves for foreign investors could be numbered, analysts said.

Diminished access to capital markets by the country’s privately owned companies – compared to firms owned by local governments using the debt markets for refinancing – reflect pronounced changes in the structure of China’s economy.

Fraser Howie, co-author of Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise, said that China has largely implemented reforms to improve foreign access to its markets over the past few years, although growing state influence on the economy means that some investors are now thinking twice.

The problem for foreign investors now is not the tools, but more the macro picture

Willer Chen, Forsyth Barr Asia

“Foreign investors must surely have realised by now that the risk and reward dynamic has changed dramatically over the past few years,” Howie said. “The glory days of growth for favourite sectors like tech are gone. Rewards have fallen and risks have gone up … all in all it means that China is simply no longer the ‘must be in’ market it once was.”

According to a survey of 295 fund managers conducted by Bank of America from October 6 – October 12, just 25 per cent of respondents expected the Chinese economy to strengthen over the next 12 months, compared to 33 per cent in September.

The proportion of those who affirmed their likelihood to invest overweight in China markets for their portfolios, minus those who said they would go underweight – another important metric for investor confidence – dropped 15 per cent in October from September, the biggest net underweight move for Chinese assets in a year.

Willer Chen, senior analyst at Forsyth Barr Asia, said he believes recent capital market reforms – such as the Nasdaq-style STAR Market set up in 2019 to fund China’s technological innovation – have been useful for foreign investors when it comes to presenting more choices.