Foreign investors are still selling Chinese bonds and stocks

Foreigners continued to sell Chinese stocks this month, after huge sell-offs in October amid concerns over geopolitical tensions, Covid restrictions and the direction of President Xi Jinping’s economic policies.

Refinitiv data shows foreigners sold $734 million net worth of mainland stocks between Nov. 1 and Nov. 10 via Stock Connect, a key cross-border link between mainland and Hong Kong stock exchanges, after selling 8, $5 billion last month.

According to Institute of International Finance, Chinese bond markets suffered a total outflow of $105 billion over nine months, while Chinese equity portfolios lost $7.6 billion in October, the most since March.

This contrasts with inflows into emerging markets in October: their stock and bond markets received $9.2 billion last month.

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Doubts on the Xi team

Analysts said last month’s selloff was due to concerns that President Xi Jinping’s new leadership team might adopt more ideological policies and place less priority on economic growth.

“One of the key takeaways that investors have come away from the 20th Party Congress is that there appear to be fewer opposing voices in government and an even higher concentration of power,” said John Lau, head of equities. shares of the investment company SEI.

“Unless the government actively communicates on policies to promote growth, capital outflows are likely to continue.”

Data from Refinitiv Lipper showed China-focused equity funds faced an outflow of $2.95 billion last month, their third straight net selloff.

Concerns about China’s shaky recovery were heightened this week after data showed exports and imports contracted in October, hit by Covid restrictions and falling external demand.

Weaker exports hurt the yuan

The slowdown in exports is expected to further hurt the yuan’s weakness, analysts said. The yuan has fallen about 12% against the dollar since the start of the year.

“From an international investor’s perspective, a weaker yuan means lower returns from Chinese assets when translated into the domestic currency, further hurting sentiment and increasing outflows,” Lorenzo La Posta said. , portfolio manager at Momentum Global Investment Management.

La Posta said it would increase exposure to Chinese stocks, given that valuations are at levels not seen since lows in 2015.

MSCI China’s 12-month forward price-to-earnings ratio was 8.1 at the end of October, well below a 10-year average of 11.3.

The Shanghai Composite Index fell for a fourth consecutive month in October, taking this year’s losses to more than 15%. The index rose 7.2% this month, helped by some hopes that the government will soon open up the economy.

However, Chetan Seth, equity strategist at Nomura, said investors have been caught off guard several times in the past by trying to ease “forward” the zero-Covid policy.

“As the market consensus forms around the potential reopening of the Chinese economy in the first quarter of 2023, it is likely that once again investors will attempt to ‘precede’ China’s reopening.”

  • Reuters with additional editing by Jim Pollard

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd newspapers in Sydney, Perth, London and Melbourne before touring South East Asia in the late 1990s. leader of The Nation for over 17 years and has a family in Bangkok.

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