Investors cautious on China markets amid growth concerns, delisting fears
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According to EPFR, while the Chinese stock market held on to inflows, European stocks funds experienced billions of dollars worth in net outflows during the first quarter. There were also declines in Japanese stock markets.
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BEIJING — Investors turned increasingly cautious on Chinese stocks, especially those listed overseas, in the first quarter of the year that was rocked by geopolitical tensions and worries about growth.
This is based on data provided by EPFR Global.
The period finished with net inflows of more than $20 Billion to Chinese stocks. However, most occurred in January. Data showed that the volume of purchases dropped as the quarter advanced.
In the first three months, the U.S. and Europe sanction Russiaover the invasion of Ukraine. China pursued a more neutral position.In the midst of a panic of selling Chinese stock, there were growing concerns about the forced removal of Chinese stocks from U.S. market. announcements from both countries’ securities regulators.
We can locate any information that is related to China in the causality or reasoning of Russia. [the]U.S. at the moment,” stated Steven Shen of EPFR’s quantitative strategies manager. It claims to track fund flows over $52 trillion worth of assets around the world.
ESG Investment Flows
Chinese stock funds focused on ESG — environmental, social and governance factors — saw inflows until mid-February, when they began seeing outflows instead, Shen said.
Global ESG stock funds however saw “very consistent” inflows during the first three months, he stated.
However, the firm didn’t share any specific reasons.
There are many unknowns about China’s Covid response as we enter the second quarter.
David Chao
Invesco is a global market strategist, APAC ex Japan.
ESG-related concerns drove investment allocation changes.
Among the headlines of the first quarter, Norges Bank Investment Management — an investment arm of Norway’s central bank which manages the world’s largest sovereign wealth fund — announced it will exclude shares of Chinese sportswearCompany Li Ning“Dues to unacceptable risks that the company contributes seriously to human rights violations.”
CNBC reached out to the fund in March to get more information. However, they declined to comment further on the matter. The fund noted that the Norwegian government had asked it to stop Russian investments and to prepare a plan to exit the country. As of Monday, the fund’s market value was more than $1.2 trillion.
CNBC did not reach out to Li Ning seeking comment.
Swapping U.S. stock for Hong Kong stocks
EPFR reports that while Chinese stocks funds held on to inflows and European stock funds witnessed billions in net outflows for the first quarter.
Data showed declines in Japanese stock funds as well. This data showed that U.S. stock fund net flows were strong, with a total of $100 billion for the first quarter.
Shen noticed a steady decrease in the exposure of funds to Chinese stocks in Hong Kong and America.
Shen stated that fund managers started selling U.S.-listed shares from Chinese companies to those trading in Hong Kong in the latter half of 2021. This has led to a decline in share prices. He stated that the exchange-traded fund process typically takes between three and six months.
As political pressures in the U.S. as well China increased, many Chinese companies offered Hong Kong shares to counter the New York delisting.
Max Luo from UBS Asset Management’s China Asset Allocation, stated that “Moves made by the US regulator regarding ADRs, and Russia-Ukraine conflict have further complicated these situations and caused substantial market swings this Year.” We observed significant outflows of Chinese equities from last year. This is a sign that China has been de-risked.
ADRs can be described as American Depositary Receipts. They are non-U.S. shares that are traded on U.S. Exchanges.
Luo stated that his firm has become more cautious about equity as Russia-Ukraine conflict flares up amid uncomfortably high levels of inflation. He said that his company has been “more constructive about Chinese equities”, due to the government’s support.
Beware of growth fears
Shen revealed that mainland Chinese stocks experienced a spike in buying, which was unprecedented since January 2019.
The event occurred after index company MSCI included mainland Chinese shares in a benchmark. It forced managers of the index to invest in mainland Chinese shares.
The Shanghai composite is still more than 12 percent lower in the current year.
This is despite stocks experiencing a mid-March stock lift following state media reports. comments from Vice Premier Liu HeThere have been some relief from concerns about Beijing’s clampdown on technology and real estate and the overseas IPOs.
Many investment banks had turned positive on mainland Chinese stocksThe year 2022 was launched despite poor sentiment in the domestic markets.
CNBC interviewed David Chao from Invesco’s Asia Pacific market strategist (ex-Japan), in the early spring to discuss “the macroeconomic backdrop seemed to improve at end of last year”.
“But, I think expectations have gotten ahead of themselvesHe said that the market for property has not reached a bottom, especially because of this. A property market crash seems to have an impact on the sentiment of markets.
According to Moody’s, 25% of China’s GDP is made up by real estate and other related industries.
The Monday China reported first quarter GDPThis was an increase of 4.8% over the prior year. It exceeded expectations of a 4.4% growth.
Although economic data in January and February were better than expected, March’s economic data have begun to reflect the effects of Covid lockdowns in economic centres like Shanghai.
Invesco’s Chao indicated that there are still uncertainties in China’s Covid response heading into the quarter. And that is the key variable to the quarter: whether the pandemic strategies of China evolve or not.
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