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Equity · Bond
Foreign investors buying Chinese stocks and bonds amid market swings
2018/08/10 05:50:32
Chinese stocks, MSCI, A-share

Aug 10, 2018 (China Knowledge) - The strong momentum of foreign investors scooping up Chinese stocks and bonds recently aptly fit the popular Chinese saying: opportunities arise upon crisis or turbulence. The on-going U.S’s tough actions by imposing another round of tariffs on Chinese USD 160 billion goods, which also a major factor in exacerbating the Renminbi depreciation, and weak Chinese stock markets are not dampening foreign buying interests.

Performance of foreign-listed Chinese tech stocks could add pessimism with downward pressure wiping billion of market value. Tech stocks such as Tencent are Alibaba, and their linked EFTs for example suffer big blows; the KraneShares CSI China Internet Fund saw a decline of 10% in two weeks sapping away some USD 220 million, iShares MSCI China ETF lost over 4%, and almost all related ETFs are not seeing inflows.

In spite of these foreign institutional investors yesterday bought up a net sum of almost USD 3 billion of Chinese stocks through the Hong Kong’s stock connect platform link to Shanghai and Shenzhen Stock Exchange. The daily quota for these programs reached highest yesterday since early June, when A-shares were added to the MSCI Inc’s benchmark gauges.

This clearly reflects foreign buyers have strong faith in China’s long term economic growth and match the consensus from MSCI that continues to add A-shares weighting. Many foreign investors are buying on opportunities now while the Chinese stock markets are much cheaper compare to the highs this January.

Other evidence of strong foreign interests are seen in the Chinese domestic bond markets which offer relatively higher coupons compare to the U.S. and many developed countries. The Hong Kong Bond Connect now attracts average RMB 6.5 billion a day, and it is expected to grow to between RMB 25 and 30 billion daily by 2020 according to official of the bond program.

But, still, this figure is a miniscule on the onshore bond markets comprising of Interbank Bond Market, Shanghai Stock Exchange and Shenzhen Stock Exchange with average daily turnover of around RMB 200 billion, and totaled over USD 11 trillion. If foreign ownership of Chinese bond market could in future equate to the U.S. of more than 35%, then this could see trillions of dollars flowing into the Chinese markets.

Besides these, there are many other sectors of China’s USD 50 trillion financial markets that are also gradually opening to foreign participation that could include commodities trading, trust products, mutual funds, private equity investments – just to name a few. The small proportion of foreign monies in the current Chinese stock and bond markets of less than 5% and 3%, respectively, are expected to increase with ease of rules and removal of strict quota.

Taking on a mid to long-term view of China’s financial markets, and a rather predictable and reasonable GDP growth rate of 6% to 7%, the growth momentum will most likely to enjoy an upward trend as the relaxation of rules to foreign investors are timely implemented and materialized.

Copyright © 2018

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