Foreign investors withdraw $33bn of bets on China’s growth

Nine-tenths (90%) of the foreign capital that was expected to flow into China’s stock exchange in 2023 is already gone, due to growing doubts over Beijing’s commitment to taking serious measures to boost the economy.

According to calculations based upon data from Hong Kong Stock Connect’s trading scheme, since August when net foreign investment peaked at 235bn (about $33bn), it has fallen 87 percent to 30.7bn.

Analysts and traders said that the change in sentiment reflected the pessimism of global fund managers about the future prospects for the second-largest country. Since August, when the severity a liquidity crisis was revealed in the property sector of the country due to missed bond payments made by developer Country Garden, international investors have been constant net sellers.

Wang Qi is the chief investment officer at UOB Kay Hian, Hong Kong, and he said that confidence goes beyond real property, even though real estate plays a key role. “I am referring to investor confidence from both domestic and foreign investors, as well as consumer confidence.”

Chinese shares continue to underperform their global peers despite positive economic data and signs of a warming in US-China relationships. has also been reducing the rates that most lenders pay for deposits to provide a buffer against a slowing economy.

Despite the S&P 500 index’s rise of 4.7% this month, China’s benchmark CSI 300 Index of stocks listed in Shanghai or Shenzhen fell by more than 3%. In December, net foreign sales of China listed shares reached 26bn.
“It is so counterintuitive – the data are improving and the overall environment should be positive for Chinese shares,” said Alicia Garcia-Herrero chief Asia-Pacific Economist at Natixis. “Frankly, there is no other reason than that investors have given up and said: ‘We do not see the upside.'”

Offshore investors have been encouraged to leave China by the widespread buybacks of shares by listed Chinese companies, as well as by the large-scale purchases made by domestic investment funds and government-run financial institutions. All are being pressured by Beijing in order to maintain sagging values.

The prolonged foreign sell-off could end the year in a negative note for Chinese markets. The Chinese markets are expected to close Friday with the lowest annual foreign inflows since 2015, when the Stock Connect program was launched. Hong Kong’s cross-border trading program is the main channel for offshore investors to trade mainland listed equities.

The sharp selling of gaming stocks such as Tencent and NetEase after Beijing announced new tough regulations for the industry slowed down a tentative recovery in market sentiment on Friday.

A trading desk manager at an investment bank in Hong Kong said that the sell-off was “damaging for appetite”. He called the sell-off partially reversed Monday a “knee jerk reaction” and a “panic selling”. . . But it shows that the sentiment is fragile right now.

Hong Kong-based traders reported that global long-only shareholders had shown a particular reluctance to invest in Chinese stocks. They expressed almost no interest since a surge of buying around a year earlier on the hope growth would rebound after the country removed disruptive “zero Covid” restrictions.
Investor perceptions about Chinese stocks have deteriorated significantly in the second half this year. In July, Country Garden and some other cash-strapped builders announced that they would provide policy support.

Bank of America’s survey of Asia-focused funds conducted in this month revealed that the majority of fund managers were underweight Chinese stocks — the same as they were in November. The CSI 300 will end the year with a dollar loss of more than 15%.

Garcia-Herrero, a Natixis employee, said: “The question that I get [from clients] about Chinese equities is ‘Which sector?’.” “But if they press me, I have no idea what to say, because there’s no sector.”