A shares a ‘haven’ for overseas investors
▶ Opening-up yields vast opportunities for foreign capital: analysts
China’s stock market could attract as much as 600 billion yuan ($88.6 billion) in 2019, as investors eye opportunities in sectors ranging from high-technology companies to the real economy, after China vowed to further open up the financial sector and global indexes included Chinese stocks.
The projected net inflow would be almost double last year’s net inflow of 300 billion yuan of overseas capital into the A-share market, according to Fang Xinghai, vice chairman of the China Securities Regulatory Commission.
Fang told a recent forum that the increase is due in part to the inclusion of Chinese stocks to global indexes.
Kang Chongli, director of the strategy department under Lianxun Securities, forecast a net inflow of 500 billion yuan into A shares this year, according to a report he sent to the Global Times on Tuesday.
In 2019, overseas investors have even quickened moves to pour capital into A shares. Just so far this year, more than 100 billion yuan worth of overseas capital has flowed into the A-share markets, according to figures calculated by Yang Delong, chief economist at the Shenzhen-based First Seafront Fund Management Co, in a report he released on Tuesday.
Good timing
The increase may have been boosted by the inclusion of Chinese assets in benchmark indexes such as MSCI’s absorption of A-share stocks and the Bloomberg Barclays bond index. The inflows are also being drawn by the low valuations in the Chinese stock market.
“The A-share market is becoming a ‘haven’ for overseas capital, at a time when risks are accumulating in the US and European stock markets. There’s the possibility that those markets might slide at any time. A-share markets, on the contrary, have bottomed out and can only rebound now,” Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology, told the Global Times on Tuesday.
As A shares gradually built momentum for a solid rebound in recent weeks, overseas investors felt that it was time to jump into the pool.
In an interview with the Global Times in December, Guy Strapp, chief executive at Eastspring Investments, the Asian investment management arm of London-based insurer Prudential, said that “given that we start from a cheap base, (around April) can be an attractive entry point... as well as excellent timing.” Eastspring Investments is set to launch its first private fund product focusing on A-share issues around April this year in the mainland.
After the Spring Festival holidays, the Shanghai Composite Index rose from 2,653.90 points on February 11 to 2,755.65 points on Tuesday, while the Shenzhen Component Index rose from 7,919.05 points to 8,440.87 points during the same period.
“This kind of rise is already quite unusual for overseas investors, considering the slight fluctuation in the US and European markets,” Dong said.
Opening-up push
Financial sector opening-up and the strength of the Chinese economy are also behind this broad trend, analysts said.
So far this year, China opened up its credit-rating sector to foreign capital. It also eased restrictions on the Qualified Foreign Institutional Investor and the RMB Qualified Foreign Institutional Investor programs, making it easier to move funds out of the Chinese mainland.
Luo Yuding, Shanghai-based financial and equity market expert and independent board director of brokerage firm Sinolink Securities, said financial opening-up measures concerning cross-border capital flows will have the most direct impact on foreign investment into A shares.
“Domestic investors should abandon their pessimistic outlook so as not to miss this round of opportunity,” Luo told the Global Times on Monday.
Opening-up measures will also continue, with moves like the launch of the stock link program between Shanghai and London, which is widely expected to take place before the end of this year.
The government’s reforms involving the science and innovation board will also provide plenty of chances for overseas investors. “Apart from major blue-chips, science companies are also sought after by overseas capital. I am sure that if a ‘Chinese Microsoft’ or a ‘Chinese Apple’ debuts on the science and innovation board, foreign investors won’t miss it,” Dong said.
“If a ‘Chinese Microsoft’ or a ‘Chinese Apple’ debuts on the science and innovation board, foreign investors won’t miss it.” Dong Dengxin
Professor at Wuhan University of Science and Technology