Mainland stocks back in global investors’ favour
Emerging markets and Asian funds cut exposure to Taiwan, report says
Global investors have turned more confident on mainland stocks and “built significant exposure to [these] equities”, HSBC says in a report after a flurry of steps taken by the regulator sparked a 10 per cent rebound from a February low in the CSI 300 Index, a benchmark comprising 300 of the largest companies listed in Shanghai and Shenzhen.
“[Global emerging markets] funds have rolled back on their underweight [position] on the mainland and turned neutral, while Asia’s fund exposure on the market is now at a seven-month high,” HSBC strategists led by Herald van der Linde said in a report published yesterday.
“This has come at the cost of a significant cut in allocation in Taiwan.”
The report added to evidence that foreign investors were returning to China’s US$9 trillion stock market following a record exodus spurred by a faltering growth outlook, elevated US interest rates and geopolitical tensions.
UBS Group this week upgraded its rating on mainland stocks to overweight, citing earnings resilience at big companies, while Goldman Sachs saw an upside of up to 40 per cent in share prices after the State Council issued guidelines to reshape the capital market.
The regulatory changes, which have arrested a three-year market downturn, came as China’s cabinet, in a rare move, issued a document to urge reforms of the stock market by strengthening scrutiny and boosting returns to shareholders.
Earlier, Beijing had directly intervened in the market, buying stocks through state-owned funds, or the so-called national team. It also replaced the head of the stock market watchdog as part of the rescue package.
Overseas investors bought a combined 22 billion yuan (HK$23.7 billion) of mainland stocks in the second consecutive month of net purchases in March via the exchange link programme with Hong Kong, snapping a record six-month outflow streak through January.
While sentiment has improved, fundamentals remain a key concern for global investors. Both retail sales and industrial production trailed the consensus projections last month while the downturn in the property market, which made up about a quarter of the domestic economy, continued.
Both emerging markets and Asian funds had cut their positions in Taiwan stocks, where tech companies such as Taiwan Semiconductor Manufacturing Co made up a big chunk of weightings and tended to mirror the performance of their peers in the United States, HSBC said.
Asian funds also pared their bets on Indian stocks and stayed underweight, while increasing holdings of South Korean shares to a five-year high due to the nation’s value-up programme.
On the whole, Asian stocks have recorded outflows so far this month as rising US Treasury yields and a stronger US dollar weighed on sentiment, according to the report.
Taiwan had borne the brunt with net sales of US$6.8 billion, with India and the mainland also seeing outflows, while South Korea was set for a sixth consecutive month of inflows and Japan was on course for a fourth successive month of net buying, it said.