Chinese stocks suffer record outflows in August, FDI to contract amid negative sentiment over economic outlook
- Chinese equities suffered an outflow of around US$15 billion in August, marking the largest monthly outflow on record for Chinese stocks
- Foreign investment may contract as competition heats up with Southeast Asian economies, including Vietnam and Indonesia
Waning interest from global investors is likely to drive more funds away from China, after its equities suffered their largest monthly outflow in August, according to various data points and forecasts.
A combination of the coronavirus pandemic, slowing economic growth, regulatory uncertainty and strained international relations caused a slump in foreign direct investment (FDI) inflows to China, according to a report by The Economist Intelligence Unit (EIU) on Thursday.
Direct investment liabilities – a gauge of foreign direct investment in China – had slumped to just US$4.9 billion in the second quarter, the State Administration of Foreign Exchange said last month, representing a decline of 87 per cent year-on-year.
China’s share of FDI inflows among emerging markets is forecast to fall to less than 30 per cent by 2027
“Overall, China’s share of FDI inflows among emerging markets is forecast to fall to less than 30 per cent by 2027, compared with a historic range of 40 to 50 per cent,” said the EIU, adding that aggregate FDI flows to Southeast Asian economies, led by Indonesia and Vietnam, are forecast to exceed China’s from 2024.
Overseas investors also pulled around US$15.5 billion from China’s emerging market portfolios in August, the largest monthly outflow since September last year, the Institute of International Finance (IIF) said on Wednesday, driven by large outflows from Chinese stocks.
Chinese equities suffered an outflow of around US$15 billion in August, marking the largest monthly outflow on record for Chinese stocks, highlighting the “negative sentiment over the country’s economic challenges, amid scepticism over measures to stem the economic slowdown”, the US-based association for the global financial services industry said.