Foreign investors start 2023 with record $21bn push into China stocks

Global investors have snapped up a record $21bn worth of Chinese equities this year, as robust economic data spurs traders to make larger bets that the reopening rally has further to run.

Foreign buying of Shanghai- and Shenzhen-listed shares through Hong Kong’s Stock Connect programme has rocketed to Rmb141bn ($21bn) so far in 2023 — more than double the previous record for the same period in 2021. The Connect scheme, launched in 2014, allows investors with a presence in Hong Kong to access stock markets on the mainland.

Alongside a sharp rise in US equities, Chinese stocks have posted substantial gains since the rally began last year. The country’s benchmark CSI 300 index of its biggest companies has risen more than 13 per cent since the end of October.

Analysts said the recent surge in foreign demand for China stocks was driven by positive economic data published after the lunar new year holiday, which had helped reassure some investors who had remained skittish about the country’s growth outlook even after it began dropping President Xi Jinping’s economically disruptive zero-Covid policy.

“It’s spectacular compared to any other year since the launch of the connect,” said Frank Benzimra, head of Asia equity strategy at Société Générale.

“Some foreign investors took a little bit more time to get clarification on the strength of the economic recovery and the policy support we were going to get this year,” he added. “The money has really come back in now that the market has got reassurance that 2023 will be all about growth.”

And while the CSI index is down about 1.6 per cent this week, the latest positive economic data — including the first growth in three months for Chinese manufacturing — has reinforced international investor confidence in China’s trajectory.

“Economic data and developments in the past week have underscored our positive outlook on China,” said Mark Haefele, chief investment officer for global wealth management at UBS, in a note this week.

On Tuesday rating agency Fitch upgraded its forecast for China’s economic growth this year to 5 per cent, from 4.1 per cent previously.

“When everybody said they’d like to have a portfolio without China, that was the bottom,” said Alison Shimada at Allspring Global Investments. She said that Allspring was now “a little overweight” on Chinese equities after increasing its allocation on October 31 — a view that was “not popular at the time”.

Iain Cunningham, co-head of multi-asset growth at Ninety One, said more than a third of one $1.3bn fund at the asset manager had been allocated to equities, almost all of it in what he viewed as “exceptionally cheap” Chinese and Hong Kong-listed stocks.

Economists said China’s equity market could receive another boost when the country’s top policymakers gather in Beijing next month.

“The first batch of allocation [to Chinese stocks] by global asset managers is almost done,” said Iris Pang, chief Greater China economist at ING. “But asset managers will think about their allocations again in March when China announces its [gross domestic product] and fiscal spending targets. Those numbers should begin another upcycle for China’s equity market.”