Foreign investors are giving up on China as capital flows reverse
In recent weeks, global investors have resumed dumping Chinese stocks and bonds after briefly seeing inflows last month, when the government pledged more help for the economy.
Hong Kong’s Stock Connect trading scheme, which allows foreigners to trade mainland-listed stocks, had seen 54 billion yuan ($7.4 billion) of net purchases after a July 24 promise from the Communist Party’s politburo for support. But according to the Financial Times, those gains are now nearly all gone.
In addition, stock exchanges in Shanghai and Shenzhen have seen nine straight days of outflows among overseas traders, according to Bloomberg, tying a record streak. During that span, foreign investors sold 46.2 billion yuan of mainland Chinese stocks.
Meanwhile, foreign institutional investors shed 37 billion yuan worth of Chinese bonds in July, according to data out Wednesday from China’s foreign exchange regulator.
While officials in Beijing raised hopes last month with bullish talk of aggressive support, they have failed to deliver on actual policies that indicate expansive moves, and analysts don’t expect any to come as the central government is seen as wary of adding too much debt.
Recent weeks have also seen fresh signs that the Chinese economy is getting worse, with retail sales and industrial output slowing further and consumer prices slipping in deflationary territory.
Portfolio managers told the FT that the pace of selling has picked up this month and will likely accelerate further, even after a surprise rate cut from the central bank this week.
The pessimism among global investors is translating to China’s benchmark stock gauge as well. The CSI 300 index of Shanghai- and Shenzhen-listed shares have nearly given back all of its 5.7% gain after the July politburo meeting.
Meanwhile, the yuan has also felt the effects of the reversal and has dropped 2.4% against the dollar this month. That prompted Beijing to pressure state-run banks to intervene in currency markets this week to prop up the yuan.
The recent outflow of capital on the part of global investors picks up where they left off in the spring, as weakness in China’s economy was becoming clear following a first-quarter bounce.
According to Reuters, $1.71 billion worth of mainland shares were sold by foreigners in May, outpacing April’s $659 million withdrawal.
Following China’s ending of its COVID-19 restrictions in December, bullish hopes for an economic rebound led to investments worth $25.05 billion in the first five months of 2023.
That’s compared to $6.36 billion in the entirety of 2022, Reuters reported. But the hopes that fueled this year’s heavy investment have been dashed as growth continues to cool across a number of Chinese sectors.
In addition to the consumer and manufacturing sectors, the real estate market — which serves as a key store of wealth in China’s economy — has also been getting worse. In July, China’s new-home prices fell for a second consecutive month and at a faster pace.
