World investor exposure to Chinese assets grows to $ 800 billion

Global holdings of Chinese stocks and bonds rose to more than $ 800 billion when investors bought assets in the country at a record rate, despite sour relations between Beijing and the international community.

The impetus in China’s markets by global investors has come despite tensions between Beijing and Washington over issues from corporate controls to Beijing’s repression of the Uyghurs in Xinjiang, which the US has labeled genocide.

It also coincided with a crackdown by Beijing Chinese listings in American capital markets, including a data security probe into ride-hailing group Didi Chuxing announced just days after its $ 4.4bn listing in New York.

According to Financial Times calculations based on Bloomberg data, offshore investors have bought $ 35.3 billion net of Chinese stocks so far this year through trading platforms linking Hong Kong with exchanges in Shanghai. and Shenzhen. It was about 49 percent higher compared to a year earlier.

Foreign investors have also bought more than $ 75 billion in Chinese Treasuries in the year to date, according to Crédit Agricole figures, which represent a 50 percent increase from a year earlier.

The foreign acquisition of Chinese stocks and Treasuries increased at the fastest pace ever compared to the corresponding periods of previous years. Enthusiasm for Chinese assets has been fueled by the country’s rapid recovery from the Covid-19 pandemic, but concerns are emerging that its economic growth slows.

“Contrary to geopolitical rhetoric, from an asset management standpoint, one cannot avoid looking at the Chinese market,” said Andy Maynard, a trader at China Renaissance investment bank.

Inflows into Chinese markets have grown in recent years, in part because of the insertion of the renminbi axis in global indices of stocks and bonds that are traced by trillions of dollars in values.

In March, FTSE Russell became the latest index provider to confirm plans include the debt of the Chinese government in its global bond index, a move that Nomura planned to funnel more than $ 130bn into China.

The bond entry this year took total foreign holdings to about Rmb3.7tn ($ 578 billion), according to FT calculations based on figures from Crédit Agricole and Hong Kong’s Bond Connect program, a offshore investors to exchange the debt issued on the continent.

Foreign investors hold more than Rmb1.4tn of land shares as of Wednesday via market links with Hong Kong, excluding other foreign investment programs.

A global change this year far from richly valued tech actions it has also profited from mainland China’s markets. Analysts said China’s ground actions have offered better exposure to sectors other than technology, such as industrial groups.

“When technology loses favor, people want other sectors, and most of those sectors are better represented on the ground,” said Thomas Gatley, an analyst at Gavekal Dragonomics.

Analysts said the continent’s shares have also found favor with global investors as Chinese stocks listed in the United States have struggled internally. repression regulators.

Shares in Didi, New York’s Chinese-listed group, fell last week after Beijing opened a cyber security probe into the company.

In the debt markets, Mansoor Mohi-uddin, chief economist at the Bank of Singapore, noted that China’s government bonds offer attractive returns compared to their US counterparts.

“There is a marked difference between the yields of Chinese bonds and U.S. Treasuries,” he said, indicating a 1.5 percentage point gap between the two.

Flows entering China’s bond market also accompanied a rally in the renminbi, which touched on three years old against the May dollar.

“We expected that the interest rate differential would continue to support the [renminbi], ”Mohi-uddin said, helping to increase entry into Chinese stocks and bonds in the second half of the year.

The Chinese central bank’s decision on Friday to reduce the ratio of reserve requirements to lenders also fueled the country’s offshore bond purchases this week.

The move, which has reduced the amount of capital banks will have to hold in reserve, is expected to release about Rmb1tn in liquidity and mark the end of the month. a tighter monetary policy in China.

But the RRR cut also signaled to markets that Beijing may be worried that growth will slow, and it came despite signs of rising inflation.

Patrick Wu, head of Asian emerging markets at Crédit Agricole, said the cut surprised many international investors in bonds, who had recently slowed down the acquisition of renminbi debt.

“People were quite bearish and underweight in Chinese bonds,” Wu said, adding that offshore purchases of renminbi debt through Hong Kong had increased after the RRR reduction.

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