Despite Regulations, Continued Investment in Chinese Funds Remains 'Calm'

[Asia Economy Reporter Minji Lee] While major investors are turning away from the Chinese market due to concerns over economic slowdown and unprecedented regulations by the Chinese government, domestic investors are increasing their investments in China.

According to financial information company FnGuide on the 12th, the return rate of 184 Chinese equity funds since the beginning of the year is -10.65%. This is the lowest figure among all country-specific funds, significantly underperforming the average return of overseas equity funds (1.27%). The gap was also large compared to emerging Asian countries such as India (18%) and Vietnam (14%) equity funds.

The persistently low returns of Chinese equity funds are due to the Chinese government unleashing corporate regulations, which has greatly dampened investor sentiment. In the first quarter of this year, concerns over the Chinese government's tightening policies suppressed stock prices, and recently, the government's moves to take control over platform companies, internet, private education companies, healthcare, gaming, and real estate sectors have had a negative impact. Although the Hong Kong Stock Exchange and Shanghai Composite Index fell by 8.3% and 5.4% respectively over the past month and rebounded by 2.1% and 3.7% this month, regulatory uncertainties regarding Chinese companies still remain unresolved.

Recently, global investment 'big players' have started reducing their stakes in Chinese companies. Yesterday, SoftBank Chairman Masayoshi Son announced that he would halt new investments in China, his second-largest investment destination, citing unpredictability of regulations as the reason. Cathie Wood, CEO of ARK Invest, also took a conservative stance by offloading a large number of China-related stocks to the market.

Despite this situation, domestic investors continue to invest in Chinese companies. Since the beginning of the year, individual investors have invested 1.5369 trillion KRW, with 451.8 billion KRW invested over the past three months and 433.3 billion KRW in the last month alone. This is interpreted as a move to buy at low prices, judging that while Chinese government regulations may increase short-term uncertainties, they cannot hinder market development. Some investors are expanding their interest in mainland growth stocks related to eco-friendly sectors (electric vehicles, solar power, semiconductors) expected to receive active government support aligned with 'Made in China 2025.' The investment appeal of the 'STAR Market' (Guangchangpan), a small and medium-sized growth stock index created by the Chinese government to facilitate capital raising for tech innovation companies, is also increasing.

Among individual funds that attracted capital in the past month, the top were ‘Mirae Asset China Guangchangpan Securities Investment Trust (16.9 billion KRW)’, ‘Korea Investment New Type Personal Pension Navigator China Mainland Securities Convertible Type (9.5 billion KRW)’, ‘Mirae Asset China H Leverage 1.5 Securities Investment Trust (3.1 billion KRW)’, and ‘Mirae Asset China H Index Securities Investment Trust (2.9 billion KRW)’ in that order.

In the securities industry, it is advised that portfolio compression is necessary due to persistent risks of economic slowdown and regulations, but it is also recommended to increase interest in companies expected to benefit from policies. Hong Rok-gi, a researcher at Kiwoom Securities, explained, “If regulatory prolongation occurs and policy influence strengthens in the second half of the year, the investment appeal of the small and medium-sized growth stock index will increase further,” adding, “Among the STAR Market and Guangchangpan 50, which have regulatory uncertainties, I view the investment appeal of Guangchangpan 50, which has a higher proportion of IT and basic infrastructure, more favorably than the STAR Market, which has a higher healthcare proportion.”

This content was produced with the assistance of AI translation services.