Global funds speed up investment in Chinese stocks as concerted measures drive economic, market recovery: analysts
China's A-share market has seen a sustained rebound recently, with multiple overseas financial institutions voicing intentions to boost their holdings. Analysts suggest that the influx of foreign capital serves as a barometer, and they believe that concerted measures will keep driving economic growth and market recovery in 2024.
"Global funds are returning to China stocks," Bloomberg reported on Tuesday, citing Morgan Stanley analysts.
Outflows from Chinese equities slowed into the end of February and regional active managers started adding growth and technology stocks, analysts said.
China's stock market is now highly attractive from a valuation standpoint, making A-shares particularly appealing, Zhu Liang, investment director of AllianceBernstein Fund Management Co, said in a note introducing the company's investment outlook in 2024.
China's listed companies are expected to maintain profit growth in 2024. It is estimated that the earnings per share of A-shares will increase about 17 percent this year. If valuation multiples remain unchanged, the profit growth suggests that the Chinese stock market should perform quite well, Zhu said.
Kinger Lau, chief China equity strategist at Goldman Sachs, and his team maintain a cautiously optimistic outlook on the Chinese stock market, anticipating that economic improvements will drive a rebound in corporate profits. Given that A-share valuations are currently at historic lows, the team maintains its "overweight" stance on A-shares, according to the company's 2024 investment outlook released via its official WeChat account in December 2023.
Goldman Sachs expects 10 percent profit growth for shares in the MSCI China Index and 11 percent profit growth for companies in the onshore CSI 300 Index in 2024.
Capital from the Middle East has continued to bet on Chinese assets, with investments spanning multiple popular sectors including new-energy vehicles, petrochemicals, pharmaceuticals, steel and more.
China-based E Fund Management and leading Saudi Arabian asset manager Riyad Capital have recently signed an agreement to exchange expertise and cooperate in local investment areas.
Analysts had previously expected that capital from the Middle East would increase its investment in the Chinese capital market, which could potentially bring an annual inflow of funds of about 20 billion yuan ($2.78 billion) to A-shares in the Chinese mainland and H-shares in the Hong Kong Special Administrative Region, according to financial publication stcn.com.
After hitting a low point of 2,635 on February 5, the benchmark Shanghai Composite Index rebounded and gained for eight straight days. It has remained above 3,000 points in recent trading sessions.
In February, A-shares reversed the trend of continuous net outflows of foreign capital seen in the previous six months. Northbound capital - overseas money flowing into China's A-share market via the Hong Kong stock exchange - increased holdings in the A-share market by a substantial 60.74 billion yuan, reaching a 13-month high.
The net buying volume of northbound capital in A-shares for the month already surpassed the total for the entire year of 2023, financial data provider Wind showed.
"The downturn in the A-share market last year deviated from China's normal economic fundamentals and the previous continuous net outflow of northbound capital was abnormal," Hu Qimu, a deputy secretary-general of the digital-real economies integration Forum 50, told the Global Times on Wednesday.
Some foreign funds that engaged in malicious short-selling underestimated not only China's resolve to stabilize its capital market but also the resilience of its economy, Hu noted.
The underlying stability of the capital market should be enhanced, according to the Government Work Report submitted to the second session of the 14th National People's Congress on Tuesday.
This sets a clear direction for the reform and development of the capital market this year, addressing the concerns of all market participants, including investors, about the current state of the capital market, experts said.
Moreover, the People's Bank of China (PBC), the country's central bank, will continue to strengthen the connectivity between domestic and foreign financial markets, attracting more overseas investors to the country's markets, PBC Governor Pan Gongsheng said at a press conference on Wednesday.
As of the end of January, foreign investors had been net purchasers of Chinese bonds for 12 consecutive months, with cumulative net purchases of 1.8 trillion yuan, Pan said.
Looking at the global landscape, the US Federal Reserve is expected to start a rate-cutting cycle by the second half of this year, which is likely to provide support for the yuan's performance this year. It is estimated that foreign capital inflows into A-shares for 2024 could range from 100 billion to 200 billion yuan, Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times on Wednesday.