Investors cautious in China market amid growth concerns, fears erased

While mainland China stock funds held the inflows, European stock funds saw billions of dollars in net outflows in the first quarter, with Japanese stock funds falling, according to EPFR.

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BEIJING – Investors became increasingly wary of Chinese stocks, especially those listed abroad, in the first quarter of the year rocked by geopolitical tensions and growth worries .

That’s according to data from research firm EPFR Global.

While the period ended with more than $20 billion in net inflows into mainland China stocks, the bulk occurred in January and the pace of purchases plummeted as the quarter progressed, the data showed.

The first three months of the year witnessed US and Europe sanction Russia about its invasion of Ukraine, while China pursues a more neutral stance. The quarter also saw growing worries about the forced delisting of Chinese stocks from the US market amid announcements from the securities regulators of both countries.

“Anything related to China, we can find causality and reasoning from Russia or [the] Steven Shen, director of quantitative strategy at EPFR, said in the US right now.

ESG Investment Line

China’s stock funds focused on ESGs – environmental, social and governance factors – saw inflows until mid-February, when they started to see inflows, Shen said. melt down.

In contrast, global ESG equity funds saw “very steady” cash flow in the first three months of the year, he said.

The company did not share specific reasons for the difference.

Entering the second quarter continues to have many uncertainties about the response of Covid China.

David Chao

Global market strategist for APAC out-of-province, Invesco

Concerns related to ESG have prompted other investment allocation changes.

Among the headlines for the first quarter, Norges Bank Investment Management – an investment arm of Norway’s central bank that manages the world’s largest sovereign wealth fund – announced. will exclude shares of Chinese sportswear The company Lining “due to the unacceptable risk that the company contributes to serious human rights violations.”

When contacted by CNBC in late March, the fund declined to disclose further, but noted that the Norwegian government had asked the fund to freeze its investments in Russia and prepare a plan to divest from the country. The fund had a market value of more than $1.2 trillion as of Monday.

Li Ning did not respond to CNBC’s request for comment.

Swap US stocks for Hong Kong stocks

While mainland China stock funds kept the inflows, European stock funds saw billions of dollars in net outflows in the first quarter, according to EPFR.

Japanese stock funds also saw declines, the data showed. It also shows that US stock funds retained strong net inflows, totaling more than $100 billion in the first quarter.

For Chinese stocks listed in Hong Kong and the US, Shen recorded a “consistent decline” in the exposure of funds.

Beginning in late 2021, fund managers began selling US-listed shares of a Chinese company for those traded in Hong Kong, which contributed to the drop in the price of that stock. Shen said. The process for exchange-traded funds typically takes three to six months, he said.

Many Chinese companies have offered shares in Hong Kong as political pressure in both the US and China increases the risk of New York being delisted.

Max Luo, director of China asset allocation at UBS Asset Management, said: “The moves by the US regulator on the ADR and the Russia-Ukraine conflict have further complicated the situation and caused caused significant market volatility this year,” Max Luo, head of China asset allocation at UBS Asset Management, said in a statement. “We’ve seen sizable outflows from Chinese equities since last year, reflecting a notable risk reduction for China.”

ADR stands for US Depository Receipt, which refers to shares of non-US companies traded on US exchanges.

“We were more cautious about equity when the Russia-Ukraine conflict flared up amid uncomfortably high inflation,” Luo said. However, he said his company has “become more constructive towards Chinese stocks” due to the government’s supportive policy.

Worried about growth

Mainland Chinese stocks have seen a spike in buying at levels not seen since January 2019, Shen said.

It comes as index company MSCI adds mainland China shares to a benchmark, he pointed out, forcing fund managers that track the index to buy mainland shares.

But the Shanghai composite is still 12% lower on the year so far.

That’s despite the stock rally in mid-March after the state media reported on opinion of Deputy Prime Minister Liu He ease worries about Beijing’s crackdown on the tech and real estate sectors, as well as overseas IPOs.

Many investment banks have turned positive for mainland Chinese stocks as 2022 begins, despite poor domestic market sentiment.

David Chao, global market strategist, Asia Pacific (outside Japan) at Invesco, told CNBC in early April: “The macroeconomy looks to have improved late last year. .

“But I thinhk expectations have surpassed themselves“Especially as the property market has yet to find a bottom,” he said. Market sentiment seems to be affected by the downturn in the real estate market. “

According to Moody’s, real estate and related industries account for about 25% of China’s GDP.

Read more about China from CNBC Pro

In Monday, China reports first quarter GDP up 4.8% year-over-year, topping expectations for a 4.4% gain.

While economic data for January and February beat expectations, the data released so far for March has begun to show the impact of Covid-related lockdowns in economic hubs. as big as Shanghai.

“Going into the second quarter continues to have a lot of uncertainty about China’s Covid response,” said Invesco’s Chao. “And that will be the most important variable in the current quarter, whether or not their pandemic policies evolve.”

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