Foreign capital flowing into Chinese stocks surged in early 2023, driven by strong profits

From Caixin Global: 2024-07-04 12:53:31

In early 2023, the Chinese mainland stock market saw a surge of foreign capital, with net overseas investment reaching 83 billion yuan in the first five months, nearly doubling the previous year but still falling short of 2021’s figures.

The influx of foreign investment was driven by strong company profits and reduced concerns over systemic risks from China’s property slump. Policy efforts aimed to support the property market, improve capital markets, and address economic challenges to boost investor confidence.

Global mutual funds had only 5.7% of assets in Chinese stocks by April, a historically low share. Favorable conditions post-market slump made Chinese shares cost-effective, attracting short-term funds looking to capitalize on low prices.

Despite an initial increase, the Stock Connect program saw a slowdown, with net overseas investment dropping to 38.6 billion yuan in the first half of the year. Analysts grew cautious about the market in May due to record low bond yields, declining house prices, and hesitancy among global investors.

In May, the MSCI China Index rose by approximately 30% from its January low due to improved sentiment rather than earnings expectations. Analysts stressed the need for solid economic fundamentals, comprehensive property rescue plans, and stronger domestic demand for sustained foreign capital inflows.

The sustainability of the stock market rally hinges on U.S.-China relations and economic fundamentals, according to Goldman Sachs. Sustained foreign capital inflows remain uncertain without positive shifts in Sino-U.S. trade tensions and economic recovery, as noted by Western Securities Co. Ltd.

Reporters Qing Na and editor Michael Bellart provided contact details for further information.



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