While mainland China equity fund held inflows, European equity funds saw billions of dollars in net outflows in the first quarter, with Japanese equity funds also declining, according to EPFR.
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BEIJING – Investors became increasingly cautious about Chinese stocks, especially those listed abroad, in the first quarter of a year shaken by geopolitical tensions and concerns about growth.
This is according to data from research firm EPFR Global.
The data showed that while the period ended with more than $20 billion in net inflows into mainland Chinese stocks, the bulk occurred in January, and the pace of buying declined sharply as the quarter progressed.
Saw the first three months of the year The United States and Europe impose sanctions on Russia Because of its invasion of Ukraine, while China has taken a more neutral stance. The quarter also saw growing concerns about the forced removal of Chinese stocks from US markets amid a wave of Announcements made by securities regulators in both countries.
“Anything about China we can find in causation and inference either from Russia or [the] Stephen Shen, director of quantitative strategies at EPFR, said the company says it tracks money flows across $52 trillion in assets worldwide.
ESG Investment Flows
Shen said Chinese equity funds focused on ESG — environmental, social and governance factors — saw inflows until mid-February, when they began seeing outflows instead.
In contrast, global ESG equity funds saw “very consistent” inflows during the first three months of the year, he said.
The company did not share specific reasons for this difference.
As the second quarter approaches, many doubts remain about China’s response to the Covid virus.
David Chow
Global Market Strategist for former Japanese APAC Corporation, Invesco
Concerns about environmental, social, and institutional governance have led to other changes in investment allocation.
Among the first-quarter headlines, Norges Bank Investment Management – an investment arm of Norway’s central bank that manages the world’s largest sovereign wealth fund – announced that Chinese sportswear stocks will be excluded company liner “Because of the unacceptable risk that the company would contribute to serious human rights abuses.”
When contacted by CNBC in late March, the fund refused to provide further details, but noted that the Norwegian government had asked the fund to freeze investments in Russia and prepare a plan to withdraw investments from the country. The fund’s market capitalization was more than $1.2 trillion as of Monday.
Li Ning did not respond to CNBC’s request for comment.
Swap US stocks for Hong Kong stocks
While mainland Chinese equity funds held inflows, European equity funds saw billions of dollars in net outflows in the first quarter, according to EPFR.
The data showed that Japanese equity funds witnessed a decline as well. It also showed that US equity funds held strong net inflows, totaling more than $100 billion in the first quarter.
For Chinese stocks listed in Hong Kong and the United States, Shen noted a “steady decline” in funds exposure.
Shen said that as of late 2021, fund managers began selling US-listed shares of a Chinese company to those traded in Hong Kong, which contributed to a drop in the prices of these shares. He said the ETF process usually takes three to six months.
Several Chinese companies have offered shares in Hong Kong as political pressures in both the US and China have raised the risk of New York being de-listed.
“The moves by the US regulator on ADRs and the conflicts between Russia and Ukraine have further complicated the situation and caused significant market volatility this year,” Max Lu, director of China asset allocation at UBS Asset Management, said in a statement. “We have seen significant inflows of Chinese stocks since last year, which reflects a significant decline in China’s risk profile.”
ADRs are American Depository Receipts, which refer to stocks of non-US companies that are traded on US stock exchanges.
“We have become more conservative towards stocks in general with the outbreak of conflicts between Russia and Ukraine amid an uncomfortably high level of inflation,” Lu said. However, he said his company has “become more positive regarding Chinese stocks” due to the government’s policy support.
growth concerns
Shen said stocks on the Chinese mainland saw an increase in buying at a level not seen since January 2019.
He noted that it happened when index company MSCI added mainland Chinese stocks to a benchmark, forcing fund managers who track the index to buy mainland stocks.
But the Shanghai Composite is still 12% lower for the year so far.
This is despite stocks rallying in mid-March following state media reports Comments from Vice Premier Liu He Concerns about Beijing’s crackdown on technology, real estate and initial public offerings abroad have eased.
Many investment banks turned positive on Chinese mainland stocks By 2022, despite weak domestic market sentiment.
“The macroeconomic background appears to have improved towards the end of last year,” David Chao, global market analyst, Asia Pacific (formerly Japan) at Invesco, told CNBC in early April.
“But I think Expectations have exceeded themselves“Especially since the real estate market has not found a bottom yet, and the market sentiment seems to have been affected by the downturn in the real estate market,” he said.
Real estate and allied industries account for about 25% of China’s gross domestic product, according to Moody’s.
on Monday, China reported first-quarter GDP It rose 4.8% from the previous year, beating expectations for an increase of 4.4%.
Although economic data for January and February beat expectations, data released so far for March has begun to show the impact of Covid-related lockdowns in major economic centers such as Shanghai.
“As the second quarter approaches, there are still many uncertainties about China’s response to the Covid virus,” said Invesco’s Zhao. “And that will be the most important variable in the current quarter, whether or not pandemic policies evolve.”
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