China stocks see record US$2.2b foreign outflows this year

China stocks see record US$2.2b foreign outflows this year
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(May 31): China’s stock market has seen unprecedented outflows from foreign investors this year as a combination of Covid-19 lockdowns, fallout from the war in Ukraine and regulatory jitters sapped demand for the nation’s assets. 

Overseas investors offloaded 15 billion yuan (US$2.2 billion or about RM9.85 billion) of Shanghai and Shenzhen shares via the trading link in the first five months of the year, the first net outflow for the period in Bloomberg data going back to 2017 as of early Tuesday (May 31). Most of the sell-off was in March — when the war in Ukraine roiled markets and Shanghai entered lockdown — but purchases since then have been modest.

Net inflows in April and May stood at around 10.5 billion yuan and five billion yuan respectively, compared with a monthly average of 36 billion yuan in 2021. The benchmark CSI 300 Index has advanced 1.3% so far in May, paring this year’s loss to about 18%.  

Offshore traders may be waiting for solid evidence of a recovery through economic data and earnings before returning to the market in force. A growing number of analysts and money managers have turned positive on Chinese equities, but still see a bumpy road ahead rather than a V-shaped rebound like in 2020.   

In 2020, foreign investors sold a record 68 billion yuan of shares in March as the Covid-19 pandemic hit, but quickly jumped back into the market to take the tally positive by the end of May.  

Several factors are working against a swift and sustainable rally this time around. The US Federal Reserve is tightening in earnest and China’s Covid-zero policy is proving less efficient against the Omicron variant, while policy stimulus so far has fallen short of market expectations.   

Offshore investors can purchase mainland shares via trading links in Hong Kong. The Shanghai-Hong Kong Connect was launched in 2014, while the Shenzhen programme opened in late 2016, allowing foreign investors easier access to Chinese equities. 

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