Andrew Galbraith and Samuel Shen

SHANGHAI (Reuters – Chinese investors see China as a refuge from inflation, growth, and pandemic threats plaguing other markets at the beginning of 2022.

Global fund managers continue to pump money into the mainland, betting on China’s stabilization promises, monetary and fiduciary easing, as well as subdued inflation, which could help them avoid volatility in other markets.

It’s a stark contrast with other situations. The Federal Reserve has increased monetary tightening in an effort to curb runaway inflation. This could potentially undermine stock prices and earnings.

David Dali of Matthews Asia is head for portfolio strategy. China will be Matthews Asia’s “single favorite” country among all the 30 investmentable emerging equity markets in 2022.

Dali stated that Chinese valuations were “some of the most risky and attractive markets”

He cited reasons such as fewer regulatory headwinds and government readiness to stimulate growth. And a mandate from the political system to preserve stability during a year that was widely anticipated to see President Xi Jinping win a unprecedented third term.

Fidelity International considers China stocks to be attractive in a global context.

China’s shift in policy is quite clear. “Recent data suggests that the economy has stabilized,” Zhou Wenqun (Fidelity) said.

Foreign net inflows to Chinese stocks through the Stock Connect scheme are a sign of this bullishness. They reached a record high of $413million per day in the first three week of 2022 according to Morgan Stanley (NYSE:).

In 2021 flows were strong with record amounts of $67billion invested in onshore equity through Connect channels. However, the blue-chip index on the continent lost 5.2% against a nearly 27% gain in the U.S.A. and double-digit gains across most European indices.

In the face of widening Sino–U.S. monetary policy differences, bond investors are attracted to China as well.

The bond market performs poorly during a rate increase cycle. But in China, Paula Chan, senior portfolio manger at Manulife Investment Management said, “We see that the monetary policy easing cycle was only at the beginning.” She also expects to see more rate cuts.

She said that China’s inflation concern “is not as alarming than in other countries” and that its bonds were a good hedge.

Strong foreign inflows helped propel the currency to the highest point in almost four years against the dollar this week, in spite of a series of reductions in key interest rates that were intended to help the economy.

According to the Institute of International Finance, however, inflows of foreign currency into China’s emerging markets have come “to an abrupt halt”.

Emerging markets (EM) outside China experienced an outflow in December of $9.6 Billion, as compared to an $10.1 Billion China received. Chinese equities contributed most to the EM inflows with an inflow of $12.5 million.

For non-China EM，”we believe that the outlook is worsened by the Omicron variant and expectations of a stronger dollar and higher U.S. interest rates,” IIF said, in its latest capital flows tracker report. Markets believe that China will rebound faster than any other EMs.

Morgan Stanley reported that foreign buyers were concentrated in the capital goods and banking sectors.

UBS Securities reported that foreign and domestic mutual funds both had made allocations to the hot subjects they consider important, including new energy and manufacturing.