Global Investor Exposure To Chinese Assets Reaches $ 800 Billion

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Global holdings of Chinese stocks and bonds soared to more than $ 800 billion as investors bought assets in the country at a record pace despite deteriorating relations between Beijing and the international community.

The push into Chinese markets by global investors has come despite tensions between Beijing and Washington over issues ranging from corporate audits to Beijing’s crackdown on Uyghurs in Xinjiang, which the United States has called genocide.

It also coincided with a Beijing crackdown on Chinese listings in US financial markets, including a data security investigation by ride-hailing group Didi Chuxing announced just days after its $ 4.4 billion listing in New York City. .

Foreign investors have bought $ 35.3 billion net of Chinese equities during the year to date through trading platforms that link Hong Kong to the Shanghai and Shenzhen stock exchanges, according to Financial Times calculations based on Bloomberg data. This was about 49% more than a year earlier.

Foreign investors also bought more than $ 75 billion in Chinese treasury bills during the year, according to figures from Credit Agricole, which is a 50% increase from the previous year.

Foreign purchases of Chinese stocks and treasury bills grew at the fastest pace on record compared to corresponding periods in previous years. Enthusiasm for Chinese assets has been fueled by the country’s rapid rebound from the Covid-19 pandemic, but concerns are surfacing about its slowing economic growth.

“Contrary to geopolitical rhetoric, from an asset management perspective, you can’t avoid looking at the Chinese market,” said Andy Maynard, trader at investment bank China Renaissance.

Entries into Chinese markets have increased in recent years, in part due to the inclusion of renminbi assets in global stock and bond indices which are tracked by trillions of dollars in assets.

In March, FTSE Russell became the latest index provider to confirm plans to include Chinese government debt in its global bond index, a move that Nomura says will funnel more than $ 130 billion to China.

The inflows of bonds this year brought total foreign holdings to around 3.7 billion Rmb ($ 578 billion), according to FT calculations based on figures from Credit Agricole and Hong Kong’s Bond Connect program, a channel allowing offshore investors to exchange debt issued on the continent.

As of Wednesday, foreign investors held more than Rmb 1.4 billion of onshore shares through market links with Hong Kong, excluding other foreign investment programs.

Overseas investors together held around $ 570 billion in Chinese stocks and bonds a year ago.

A global shift this year away from high value-added tech stocks has also benefited mainland Chinese markets. Analysts said China’s onshore stocks offered better exposure to non-tech sectors, such as industry groups.

“As technology loses favor, people want other sectors, and most of those sectors are better represented on land,” said Thomas Gatley, analyst at Gavekal Dragonomics.

Analysts said mainland stocks have also found favor with global investors, as Chinese stocks listed in the United States face domestic regulatory crackdowns.

Shares of Didi, the New York-listed Chinese rideshare group, fell last week after Beijing launched a cybersecurity investigation into the company.

In debt markets, Mansoor Mohi-uddin, chief economist at the Bank of Singapore, pointed out that Chinese government bonds offer attractive yields compared to their US counterparts.

“There is a marked difference between the yields of Chinese bonds and US Treasuries,” he said, pointing to a 1.5 percentage point gap between the two.

Inflows into the Chinese bond market also accompanied a rally in the renminbi, which hit a three-year high against the dollar in May.

“We expect the interest rate differential to continue to support the [renminbi]Said Mohi-uddin, helping to boost inflows in Chinese stocks and bonds in the second half of the year.

China’s central bank decision on Friday to cut lenders’ reserve requirements has further fueled the country’s offshore bond purchases this week.

The move, which reduced the amount of capital banks must hold in reserve, is expected to free up around Rmb1 billion in liquidity and mark the end of the month of tighter monetary policy in China.

But the RRR cut also signaled to markets that Beijing may have feared slower growth, and came despite signs of rising inflation.

Patrick Wu, head of Asian emerging markets at Credit Agricole, said the decline surprised many international bond investors, who had recently slowed renminbi debt purchases.

“People were quite bearish and underweight in Chinese bonds,” Wu said, adding that offshore purchases of renminbi debt through Hong Kong had increased following the RRR cut.

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