Global investors ease back into China’s stock market on policy bets

Bloomberg

Global investors returned in earnest to China’s stock markets in May, erasing much of the year’s earlier outflows, as investors bet that policy support and the emergence of key cities from Covid-lockdowns will spark a revival.
They added 16.9 billion yuan ($2.5 billion) of Shanghai and Shenzhen shares via trading links this month, narrowing year-to-date outflows to just 1.2 billion yuan. Most of the selloff was in March — when the war in Ukraine roiled markets and Shanghai entered lockdown.
A growing number of investors and analysts from Shenzhen to Paris have turned positive on Chinese equities in recent weeks as Shanghai emerges from a lockdown and data suggests that the economic drag may have bottomed. Many though still see a bumpy road ahead rather than a V-shaped
rebound like in 2020.
Foreign investors sold a record 68 billion yuan of shares in March 2020 as the pandemic hit, but quickly jumped back into the market to take the tally positive by the end of May.
Offshore traders may still be waiting for solid evidence of a recovery through economic data and earnings before returning to the market in force. China’s manufacturing activity improved in May, but remained at a level that indicates contraction.
Several factors are working against a swift and sustainable rally. The Federal Reserve is tightening aggressively, China’s Covid Zero policy is proving less efficient against the omicron variant, while policy stimulus so far has fallen short of market
expectations.
Net inflows in April and May stood at around 6.3 billion yuan and 16.9 billion yuan, respectively, less than half of the monthly average of 36 billion yuan in 2021. The benchmark CSI 300 Index advanced 1.9% in May, paring this year’s loss to about 17%.
The size of the year-to-date selloff narrowed on Tuesday, as investors adjusted holdings ahead of a change in the MSCI indexes’ constituents, taking effect as of the day’s close.
Offshore investors can purchase mainland shares via trading links in Hong Kong. The Shanghai-Hong Kong Connect was launched in 2014 while the Shenzhen program opened in late 2016, allowing foreign investors easier access to
Chinese equities.