China Stocks at the Mercy of Foreigners Like Never Before
China Stocks Are at the Mercy of Foreigners Like Never Before
(Bloomberg) -- The record pace of foreign selling in China’s equities matters now more than ever.
While overseas traders are quickly souring on yuan assets, they’ve also never wielded this much influence over the onshore stock market. Index inclusions and expanded quotas mean they drive a record 10% of daily turnover, according to data compiled by Bloomberg. That proportion is even greater for favorites like Kweichow Moutai Co., at 34% on a monthly basis. They own 3.1% of the $6.5 trillion stock market, almost as much as the country’s mutual funds.
Integrating China’s capital markets into the global financial system has been a priority for the country’s policy makers since late 2017. In the year since MSCI Inc. first added mainland shares to its benchmarks, China has been expediting measures that make it easier for overseas investors to manage risk. Their growing influence means that mainland stocks, which have historically been somewhat immune to shifts in global sentiment, are losing that resilience.
“The recent outflows of foreign capital are affecting sentiment onshore,” Chao Jiang, an analyst at Haitong Securities Co., wrote in a note this month. “Foreign investors tend to sell A shares in the short term when global stocks drop. Their risk appetite is more likely to be affected by what’s happening in other major markets.”
MSCI will expand the weighting of China-listed shares in benchmark indexes tracked by global investors at the end of this month, a move analysts predict will attract billions of dollars in overseas capital.
Still, foreign investors tend to stick with megacaps like Jiangsu Hengrui Medicine Co. Foreign trading accounts for nearly 40% of the stock’s average monthly turnover over the past year, the data show.
Foreign investors held about 1.15 trillion yuan ($167 billion) of mainland shares as of the end of last year, according to the latest data the central bank has on its website. That puts them on par with the nation’s mutual funds, who owned about 4% of the market, according to Bloomberg calculations.
Foreign money has been flowing out of China’s stock markets since late March, just before a $1 trillion sell-off started. Overseas investors have sold about 50 billion yuan of equities in May, in line to smash the monthly record of 18 billion yuan set just last month. The CSI 300 Index fell 1.8% on Thursday.
Midea Group Co., Ping An Insurance Group Co., Kweichow Moutai and China Merchants Bank Co. are the most-bought stocks via the trading links in the past two years, data compiled by Bloomberg show. They’ve been good bets, too. The four returned more than 60% on average during the period, compared with a 4.7% gain by the CSI 300 Index.
--With assistance from Martin Ritchie.
To contact the reporters on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net;Mengchen Lu in Shanghai at mlu157@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann
©2019 Bloomberg L.P.