Overseas traders return to Chinese onshore stocks, tucking into blue chips amid longest buying streak this year

·4-min read

Global fund managers are returning to Chinese yuan-traded stocks, as easing of lockdown measures and improving economic data reverse an exodus of foreign funds.

Overseas traders were net buyers via the Stock Connect link with Hong Kong for an eighth consecutive day through Wednesday, the longest streak since December, according to Hong Kong stock exchange data. Combined purchases totalled 50.9 billion yuan (US$7.6 billion) in the period, with investors preferring big industry players and green-economy names.

The return of foreign buying will help to further bolster confidence in China’s onshore shares and sustain a 12 per cent rebound since April, analysts said.

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“Looking forward, we believe market expectation of economic rebound will strengthen in the near term given the marginal improvements in economic data and gradual implementation of policy stimulus, potentially providing continuous support to risk appetite recovery,” said Mary Xia, an analyst at UBS Group.

China’s growth prospects have brightened after Shanghai officially ended its two-month lockdown on June 1 and the capital Beijing began unwinding confinement in most districts, allowing restaurants and entertainment venues to reopen. The purchasing managers’ gauges of the nation’s manufacturing and services both picked up in May, although they still remain in contraction territory.

Liquor distiller Kweichow Moutai, retail banking giant China Merchants Bank and duty-free shop operator China Tourism Group Duty Free were among the most-bought stocks by foreign traders in the past week, data from Eastmoney.com showed. New-energy stocks like lithium-ion battery maker Contemporary Amperex Technology (CATL) and photovoltaic product manufacturer Trina Solar also topped the buying list.

Meanwhile, overseas fund managers sold stocks linked to the property sector such as developer China Vanke and cement maker Anhui Conch Cement, as demand for new homes continued to remain sluggish, the data showed.

The wave of foreign buying probably signals that global fund managers have turned more upbeat about the Chinese market, which at one point was the world’s worst performer this year amid Beijing’s gruelling zero-Covid policy. They sold 21.9 billion yuan of Chinese stocks in the three months through May, after the Shanghai lockdown led to the suspension of production at multinational companies including Tesla and threw logistics supply into disarray.

A reel of labels for Moutai baijiu bottles sits on the production line at Kweichow Moutai’s factory in the town of Maotai in Renhuai, Guizhou province. Global investors have strengthened their position in the liquor maker. Photo: Bloomberg
A reel of labels for Moutai baijiu bottles sits on the production line at Kweichow Moutai’s factory in the town of Maotai in Renhuai, Guizhou province. Global investors have strengthened their position in the liquor maker. Photo: Bloomberg

The sustainability of foreign inflows will be tested soon as China is due to release a slew of key May economic figures in the coming week, which will offer further insight into its recovery from the fallout of the resurgence in the pandemic. The data dump will include aggregate financing, loans, money supply, trade, industrial production, retail sales and investment.

“China has a busy economic calendar this week,” said Redmond Wong, a strategist at Saxo Markets in Hong Kong. “The market will be focusing on the aggregate financing, loans and money supply figures and the trade data.”

Aggregate financing, the broadest measure of credit supply probably rebounded to 2.03 trillion yuan in May from 910 billion yuan in April, according to Bloomberg estimates, while new loans may have almost doubled to 1.22 trillion yuan from the previous month.

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“Much of the bad news is already baked in the stock price [and] it’s a good thing that the investor expectation is also getting lower,” said Wang Qi, chief investment officer at MTI Management in Hong Kong.

“I don’t think the Chinese stock market will panic again if the May economic data is down [on a year-on-year basis], as long as there are sequential improvements. The Chinese government stands ready to launch additional stimulus to prevent a hard-landing of the economy.”

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