The Financial Times reported on March 19 that foreign investors are selling Chinese stocks at an unprecedented rate, with a record of 6 billion dollars in the first three months of this year. The move was due to concerns about the new outbreak in China and the risk of possible sanctions on Beijing from the West if the regime supported Russia in the war with Ukraine.
The report said Chinese stocks fell hard early this week as the number of cases of COVID-19 spiked in major cities in Shanghai and Shenzhen, with local investment picking up after Beijing unveiled a series of market-friendly measures. However, foreign investors have not increased their holdings in China-listed stocks. Investors and fund managers say the gap reflects many concerns that have hit the market value of even those companies leading the way in 2020.
Pruksa Iamthongthong, senior investment head of Asian equities at Abrdn, said, “China stocks have been in a perfect storm for the past two weeks, and global investor confidence in Chinese stocks is so low that the volatility will continue.”
The outflow of foreign capital through the Shanghai-Hong Kong Stock Connect and Shenzhen Stock Connect trading mechanisms since the 7th of this month has intensified.
By the close of trading on March 18, net sales by foreign investors so far this year amounted to nearly 40 billion yuan (6 billion dollars).
According to the South China Morning Post on March 16, JPMorgan Chase downgraded 28 Chinese internet stocks to neutral after two days of double-digit losses and advised investors not to invest in the stocks for the next 6 to 12 months.
Some international investment banks raised their ratings on Chinese companies after Vice Premier Liu He announced measures to boost the economy in the first quarter and a series of market-friendly policies.
According to the Financial Times, Credit Suisse said it would raise its allocation to Chinese stocks, calling Beijing’s move “significant.” Citigroup also raised its rating on Chinese stocks.
Both banks, however, defined their intentions to increase their exposure as “tactical,” which means that there will be limited buying or targeting of specific stocks rather than increasing exposure to the overall China market.