(Reuters) – Overseas investors extended their Chinese stock sales into April, after dumping them in the previous month, due to growing concerns about the impact of long-term COVID-19 lockdowns, growth and the consequences of Ukraine-Russia -the war.
Foreign investors have sold Chinese shares for a net $ 1.01 billion so far this month via Hong Kong’s equities bond program, following their $ 7.1 billion sale in March, data from Refinitiv Eikon and the Hong Kong Stock Exchange showed.
Chinese stocks have fallen nearly 5% so far in April as severe COVID lockdowns in Shanghai and other major cities paralyze economic activity.
Large and medium-sized stocks on the mainland have fallen about 20% this year, making Chinese stock markets the world’s worst performers after Russia.
Graph: Foreign flows to Chinese stocks via Stock Connect, https://fingfx.thomsonreuters.com/gfx/mkt/myvmnyggzpr/Foreign%20flows%20into%20Chinese%20stocks%20via%20Stock%20Connect.jpg
China’s top securities regulator said on Thursday that the economy remained healthy despite several challenges, urging institutional investors to invest more in equities to help curb short-term market fluctuations while contributing to economic restructuring.
Asset Manager Schroders said the valuation of the Chinese stock market is now back to the lows observed in March 2020, when COVID started, and December 2018, when tensions between the US and China were soaring.
“Given all the current uncertainties, there will be a need for patience in relation to the risks. However, A shares could be more resilient due to the robust domestic investor base. They are also well positioned to benefit from greater policy easing.” Bond investors remained on the sidelines, primarily due to a rise in US government bond yields, which has eroded the premium on Chinese debt and also a rapid fall in the yuan [CNY/]. Last month, external investors sold $ 17.7 billion worth of Chinese bonds through Hong Kong’s Bond Connect, the largest outflow since at least August 2017.
Graphics: Foreign flows into Chinese bonds via Stock Connect, https://fingfx.thomsonreuters.com/gfx/mkt/dwvkryaempm/Foreign%20flows%20into%20Chinese%20bonds%20via%20Stock%20Connect.jpg
Foreign holdings of Chinese bonds amounted to $ 3.57 billion at the end of March, the lowest in five months, according to data from the China Central Depository & Clearing Co. (CCDC).
Graphics: Chinese 10-year benchmark return vs. US 10-year government return, https://fingfx.thomsonreuters.com/gfx/mkt/znpnemzldvl/Chinese%2010-yr%20benchmark%20yield%20vs.%20U.S.%20U.S. -year% 20treasury% 20yield.jpg
“Chinese government bonds (CGBs) are likely to see foreign holdings fall in the coming months, as the CGBs’ yield advantage has disappeared in parallel with this year’s divestment of global bonds, and expectations of aggressive interest rate cuts by the PBOCs are now low,” Duncan said. Tan. strategist at DBS Bank.
“Global bond investors are likely to consider the CGB’s outperformance potential to be much smaller going forward.”
Graph: Foreign holdings of Chinese bonds, https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkmewzpx/Foreign%20holdings%20in%20Chinese%20bonds.jpg
(Report by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Edited by Vidya Ranganathan and Shailesh Kuber)