Global investors buy more mainland Chinese stocks

BEIJING — International investors are putting more money into Chinese stocks, even as local investors have remained cautious on the mainland markets.

Mainland Chinese stock funds saw net inflows of $16.6 billion in January — only the fourth time since the pandemic that monthly inflows have exceeded $10 billion, according to research firm EPFR Global. That followed nearly $11 billion in net inflows in December, the data showed.

“Investor interest in China has actually strengthened coming into the fourth quarter of last year,” Cameron Brandt, director of research at EPFR, said in a phone interview last week. “The driver there I think is a perception — especially among institutional investors — that in the emerging markets space, China is, for a variety of reasons, something of a safe play this year.”

The latest wave of buying is from institutions, rather than retail investors whose interest in China dropped off since early last year, Brandt said.

The divergent interest comes as global investment firms have turned increasingly positive on mainland Chinese stocks in the last several months.

Analysts are betting, in part, that Beijing wants to ensure growth in a year the ruling Chinese Communist Party is set to choose its next leaders at a national congress in the fall. At the same meeting, President Xi Jinping is expected to take on an unprecedented third term in power.

“Everything will need to look quite to perfection for [such] a monumental event,” Jason Hsu, chairman and CIO of Rayliant Global Advisors, said in a phone interview last week. “For anyone who is a rational investor, this is probably as favorable a sentiment as you’re going to get.”

China has also become “a good contrarian play” this year because the local market is entering a period of stimulus and easier policy, while the U.S. Federal Reserve embarks on a tightening cycle, Hsu said.

Goldman Sachs and Bernstein are so optimistic that they each released lengthy reports in the last few weeks recommending mainland Chinese stocks, also known as A-shares.

The upbeat calls come despite worries about how regulatory uncertainty may have made those stocks “uninvestable.”

“We believe China A shares, a US$14tn asset class, have become more investable given the ongoing liberalization and reform measures in the Chinese capital markets,” Goldman’s chief China Equity Strategist Kinger Lau and his team said in an 89-page report Sunday.

In the last 18 months, Beijing has cracked down on alleged monopolistic practices by Chinese internet companies and property developers’ high reliance on debt, among other issues. The sometimes abrupt policy changes have surprised global investors.

Global emerging markets funds have turned to India in the meantime, EPFR data showed.

“Managers of funds who run diversified funds, they’re less enthusiastic…