China: Record Inflows by Foreign Investors Since April

Since the start of this year, Chinese stock markets have dropped by approx. 20%, triggered not least by the serious trade conflict with the US and weaker fundamentals. 

Rather unnoticed from this development, during the last 5 months, the Chinese stock markets could record inflows from foreign investors, measured by the monthly payments flowing through the stock-connect channel, which exists since 2014, via Hongkong to Shenzen and Shanghai. 

This phenomenon cannot be explained alone by the overdue inclusion of 234 “A-shares” into the MSCI Emerging Markets Index, which forces passive investment funds to purchase those shares. It rather looks like “strong hands” specifically “bought the dip”. This assumption is also supported by a recent survey by JP Morgan Asset Management; it shows that 73% of the 200 interviewed institutional investors based in Shanghai and Beijing expect rising Chinese stock prices within the next 12 months. 

Chinese mainland investors, the majority of whom are still in the retail area, however, have obviously taken profits as momentum investors during the last 18 months. This might explain the strong flow back from the mainland China to Hong Kong during exactly the same period. 

Long-term oriented investors see China as the future world power which – irrespective of temporary trade conflicts – ploughs its path with further goal-oriented modernizations of its economy and aims to reach global leadership in various key industries, and thereby leaving many competitors behind. Various Chinse companies will become “global players”, and China is bound to become an own asset class in the portfolios of investors.