Samuel Shen and Dhara Ranasinghe
SHANGHAI/LONDON (Reuters) – Buoyed by China’s latest measures and promises to fix the weakest parts of its struggling economy, domestic investors are snapping up shares in the cheap stock market, while most foreign investors are hopeful but slow to do so.
Last week’s sweeping measures to support the real estate sector, which authorities described as historic, were the latest in a series of steps China has taken since February to try to boost consumption, channel public money into priority sectors and prop up the stock market.
Share prices rebounded from multi-year lows in February amid signs of increased official support. Shanghai’s benchmark index has risen more than 3% since reports of a property rescue emerged on Thursday, rising to a fifth in 3-1/2 months, although gains stalled on Tuesday as investors awaited more details on how financing will be provided. Job. Chinese shares listed on the Hong Kong stock exchange rose almost 38%.
Capital flow data shows the rally was primarily driven by mainland investors returning to a market they abandoned during the pandemic years. Foreign money was a trickle.
“To some extent, I think that what has been announced is not yet on the scale to begin to significantly increase GDP by tens of percentage points,” said Sunil Krishnan, head of multi-asset funds at Aviva (LON:) Investors in London. “So for investors, this is a problem.”
Krishnan says his funds do not have active positions in China but have exposure to commodities, which will indirectly benefit if the country’s property market recovers from a long slump.
But Aviva will have to move from a bearish stance on China to a more neutral stance as “China policy appears to be waking up to the realities of what is needed”, he said.
The latest real estate moves appear key as China’s central bank and provincial governments jointly announced steps to buy unsold homes and cut mortgage rates, suggesting Beijing is intent on reviving a sector that once accounted for a fifth of economic output countries.
Among them was the People’s Bank of China’s promise to set up a 300 billion yuan ($41.46 billion) on-lending facility for state-owned enterprises to buy completed, unsold homes.
The numbers were “a little overwhelming” but the intention to “put the money where the mouth is” was constructive, said Zhenbo Hou, strategist at BlueBay Asset Management.
“They no longer deny the problems. They acknowledge the problems. They are moving closer to the market’s view of what decisions should be… This explains why financial assets are reacting positively,” Howe said.
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A series of moves to set a floor for markets, starting with regulations to curb short selling and measures to boost strategic technology sectors, raise pensions and subsidize housing, were aimed at getting Chinese consumers to spend money again.
But foreign investors, looking for signs of a more sustainable economic turnaround, are seeking more stimulus and flow data shows fluctuations.
An analysis of flows into more than 3,000 Japan-focused funds and a similar number of Chinese funds in the LSEG Lipper database shows that Chinese funds had net inflows this month, but investors have pulled $1.2 billion out of China this year and invested $18 billion to Japan. .
Chi Lo, senior market strategist at BNP Paribas (OTC:) Asset Management in Hong Kong, says people are noticeably less negative about China, but are not willing to pull cash out of other markets.
“We are seeing some increase in allocations back to China, but this is not from the free money that investors have at the moment. They still have a positive view of Japan. They remain positive about India.”
Most long-term money managers are looking for a breakthrough in the still rocky Sino-U.S. relationship, especially ahead of November’s U.S. presidential election, and larger stimulus proposals, said Jason Xu, chief investment officer at Rayliant Global Advisors.
While China’s domestic investors are bullish, they are favoring Hong Kong-listed stocks, which are cheaper and likely to rise stronger and faster if foreigners join the rally.
Mainland Chinese investors have poured an estimated $33 billion into Hong Kong stocks through the Stock Connect scheme. Data compiled by Ping An Securities show mainland stock ETFs attracted 23.6 billion yuan of inflows in April, 10 times more than in March.
However, flows into global China-focused ETFs such as Krane Funds Advisors’ KraneShares ETF and Blackrock’s (NYSE:) iShares China Large-Cap ETF remain moderate, declining for several months.
KraneShares recommends remaining neutral or underweight Chinese stocks.
Chief investment officer Brendan Ahern points to the influx of capital into mainland-listed ETFs as evidence that “Chinese investors are buying China.”
George Maris, chief investment officer and global head of equities at US Principal Asset Management, which manages about $651 billion in assets, said the negativity toward China has gone too far.
Maris is bullish on several sectors, including technology, and has reallocated capital to China since September.
However, a large-scale revaluation of Chinese stocks by global investors has not yet occurred and will not happen until markets begin to rise, he said.
($1 = 7.2365 yuan)