Global investors are increasingly drawn to China’s stock market, banking on the momentum from last month’s rally. However, many are opting for a cautious approach, waiting for clearer signs of economic improvement and better earnings before making significant investments.
The recent shift in sentiment has been swift, with billions in investor capital that had previously flowed to India and Japan now making its way back to China. This has lifted China’s market exposure from near record lows towards a more neutral stance. A recent Bank of America survey revealed that the percentage of Asia fund managers increasing their China investments surged from 8% to 31% in just one month, while interest in opportunities outside China dropped dramatically.
Despite this enthusiasm, the markets have retreated about 10% from their recent highs, and third-quarter GDP data indicated the slowest growth since early 2023. Investors are now preparing for a wait-and-see approach.
“The key to a significant rise in shares hinges on whether the government can stimulate consumer demand,” explained Willem Sels, Global Chief Investment Officer at HSBC Global Private Banking and Wealth. He emphasized that the market is eagerly awaiting specifics on fiscal stimulus to spark further growth in stocks.
China has ceased to provide timely data on capital flows in and out of its equity markets, but declining turnover suggests that investors are cautiously optimistic about the government’s latest stimulus efforts.
Cash influx into U.S.-listed exchange-traded funds (ETFs) investing in China has largely remained stable following an initial surge. “Investors are still observing the market—there’s no immediate rush to take profits,” said Henry Wu, Head of Xtrackers U.S. Products at DWS. The Xtrackers Harvest CSI 300 ETF has attracted over $2.2 billion since late September, indicating strong interest.
Foreign investors find tech and e-commerce sectors appealing, as these areas stand to benefit from an uptick in consumer spending and offer a cushion with relatively low valuations. “They’ve faced scrutiny for years, but we believe this time, Chinese policymakers want to support the market,” said Nate Thooft, CIO for Multi-Asset at Manulife Investment Management. He noted that this could help narrow the valuation gap with similar companies in other countries.
While many investors are steering clear of real estate, where volatility reigns among once-dominant developers, others remain wary of geopolitical tensions and regulatory uncertainties in China, prompting some to exit the market entirely.
Despite these challenges, the overall sentiment is shifting from a reluctance to engage with China’s stock market to a more cautious optimism. “We’re not speculators; we’re building a thoughtful investment case,” remarked Benjamin Melman, Chief Investment Officer at Edmond de Rothschild Asset Management, which has maintained a neutral stance on China for over a year. “It’s better to be late than wrong.”
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