These Are the Chinese Stocks Topping Foreigners’ Shopping Lists

(Bloomberg) -- Foreign investors are piling into Chinese stocks after a dismal 2018 for the country’s equity market.

They’ve bought 52 billion yuan ($7.8 billion) of A shares via trading connects in Shanghai and Shenzhen this January, putting it on course to be the biggest month for inflows since the second exchange link with Hong Kong opened in late 2016, Bloomberg calculations based on trading turnover show.

“Funds are flowing back to emerging markets after the U.S. Fed slowed the pace of rate hikes. A shares are showing cheap valuations and a possible fundamentals recovery on the back of government stimulus,” said Vincent Hsu, a Taipei-based fund manager at Fuh-Hwa Securities Investment Trust Co.

These Are the Chinese Stocks Topping Foreigners’ Shopping Lists

More than $2.3 trillion was wiped from China’s stock markets last year, as the Shanghai Composite Index plunged 25 percent and the Shenzhen Composite Index tumbled 33 percent, their worst performances since the financial meltdown a decade earlier. Even then, foreign investors weren’t dissuaded: they bought net 294 billion yuan of A shares in 2018.

Enthusiasm for Chinese equities is picking up further now that the general mood is improving -- the Shanghai and Shenzhen benchmarks have advanced 3.3 percent and 1.3 percent in January, respectively. Along with Beijing’s plans to loosen lending and boost the economy, occasional signs of progress in U.S.-China trade talks have helped.

Foreigners’ Favorites

Kweichow Moutai Co. is top of the shopping list, with 6.8 billion yuan of net buying this January through Tuesday. The world’s biggest distiller by market value is followed by home appliance makers Gree Electric Appliances Inc. of Zhuhai and Midea Group Co., as well as fellow baijiu producer Wuliangye Yibin Co. Consumer names account for half of the 10 stocks taking most inflows from across the border.

“A lot of consumer firms can still offer strong growth, which will support stocks’ upside in the long run,” Hsu said.

These Are the Chinese Stocks Topping Foreigners’ Shopping Lists

While uncertainty remains over progress in trade talks, another boost in foreign inflows could come at the end of February. That is when MSCI Inc. is set to announce its decision on whether it will increase the weighting of A shares in its indexes. Foreign investors could already be positioning for the green light.

“Many funds may see an arbitrage trade here, buying ahead of the MSCI decision and selling after the announcement,” said Chen Li, chief economist with Soochow Securities Co. and a former A-share strategist at Credit Suisse Group AG. “The prospect of a bigger weighting lifts sentiment.”

These Are the Chinese Stocks Topping Foreigners’ Shopping Lists

Morgan Stanley Asia Ltd. forecasts 2019 will be a record year for foreign inflows to A shares, with up to $125 billion coming in from passive and active funds, analysts led by Laura Wang wrote in a note Wednesday.

©2019 Bloomberg L.P.