Investor flight from China reverses as Beijing shifts sentiment

The global flight from Chinese stocks during the rout earlier this year has reversed, underlining the rapid shift in sentiment as investors bet Beijing can engineer a recovery for the world’s second-largest economy.

The Chinese stock market has staged a rebound in recent weeks as authorities step up their efforts to boost an economy blighted by repeated coronavirus lockdowns and shaken by the crackdown on the country’s tech sector.

The benchmark CSI 300 index of companies listed on the mainland has climbed 13 per cent since its low for the year in early May, buoyed by measures to support the economy, including a record cut to the country’s mortgage rate late last month.

Offshore investors using Hong Kong’s Stock Connect trading scheme snapped up $5.5bn worth of equities listed in Shanghai and Shenzhen last week, adding to the heavy buying of Chinese companies this month as some global money managers decided the worst was over.

That has taken foreign inflows into China’s stock market to roughly Rmb40bn ($6bn) this year, putting holdings above levels in early March when the sell-off began, according to Financial Times calculations based on Stock Connect data.

“Clearly there’s been a turnround in appetite,” said Tim Moe, chief Asia equities strategist at Goldman Sachs, adding that global investors have become more willing to entertain a bullish outlook on Chinese stocks.

The return of international demand is a striking break from earlier in the year when fears over the economic damage from lockdowns, the geopolitical fallout from Russia’s invasion of Ukraine and the regulatory attack on the tech sector left the Chinese stock market with its worst start to a year since 2015.

Line chart of Net flows to Chinese equities via Hong Kong’s stock connect scheme (Rmb, bn) showing Appetite for China stocks surges

Evidence that last year’s crackdown on the tech sector is cooling has helped change the mood, sending shares in the ecommerce groups Alibaba and Tencent higher.

Last week, the New York-listed shares of ride-hailing group Didi Chuxing surged on reports authorities may allow it to sign up new users for the first time in almost a year, though the company’s shares remain 80 per cent below its initial public offering price.

Alex Treves, head of Asia equities investment specialists at JPMorgan Asset Management, said that after regulators turned the screw last year, “we’ve got quite a strong conviction that is swinging in the opposite direction”.

A let-up for the tech sector is likely to be part of Beijing’s efforts to help the economy hit a target of 5.5 per cent expansion this year without abandoning a zero-Covid policy that has restrained growth, Treves added.

Despite growing confidence among some investors that Beijing can steer the economy towards a speedier recovery, significant risks remain.

Li Keqiang, the country’s premier, warned at the end of May that the economy may struggle to record positive growth this quarter. Even after the rally of the last month, the CSI 300 is still down 14 per cent this year.

“All of a sudden every strategist across the planet is saying how positive China looks,” said Andy Maynard, a trader at investment bank China Renaissance. “Right now [the rally] is running on fumes, to be honest. Without another catalyst for conviction, something credible being said by regulators, it’ll run out of steam.”

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