Despite Alibaba Plunge and Evergrande Crisis, Foreign Investors Inject 140 Trillion Won into Chinese Bonds and Stocks

[Photo by Reuters-Yonhap News]

[Asia Economy Reporter Park Byung-hee] Despite the stock price crash of major IT companies including Alibaba due to Chinese government regulations and the sharp decline in Chinese bond prices caused by the liquidity crisis of real estate developer Evergrande Group, it has been confirmed that global investors' holdings of Chinese stocks and bonds increased by approximately 140 trillion won this year. This is interpreted as being due to an increase in foreign investors directly investing in the Chinese mainland market, despite the plunge in offshore Chinese bond and stock prices.

According to major foreign media on the 9th (local time), as of the end of September this year, the scale of Chinese stocks and bonds held by global investors was estimated at 7.5 trillion yuan (about 1,387 trillion won). The holdings of yuan-denominated bonds were 3.9 trillion yuan, and stock holdings were 3.6 trillion yuan. This is an increase of about 760 billion yuan (approximately 140.732 trillion won) compared to the end of last year.

Alibaba and Didi Chuxing, listed on the New York and Hong Kong stock exchanges, saw their stock prices fall by 30-40% this year.

However, the number of foreigners trading on the Chinese mainland stock market is increasing. According to Chinese investment bank China Renaissance, the proportion of individual investors' transactions has dropped from 66% to about 30% over the past decade. On the other hand, the foreign investor proportion has increased to about 6%.

Bruce Fang, head of research at China Renaissance, said, "Foreigners are already creating a trend in the Chinese mainland market," adding, "Chinese investors are paying more attention to the movements of foreign investors."

There is also an analysis that the sharp decline in stock prices of companies listed on the New York and Hong Kong stock exchanges has rather served as an opportunity to increase foreign investors' interest in the Chinese mainland market. In the case of Didi Chuxing, shortly after listing on the New York Stock Exchange instead of the Chinese mainland, it was subjected to a large-scale audit and fines by the Chinese government. The Chinese government is displeased with companies turning their attention to overseas markets and is targeting them with regulatory measures. As a result, foreigners have no choice but to focus on the Chinese mainland market.

A fund manager at a Hong Kong asset management firm explained, "Due to Chinese government policies, it is impossible to invest in Chinese stocks listed on the New York Stock Exchange," and therefore, "foreign investors will be interested in A-shares on the Shanghai and Shenzhen stock exchanges."

A-shares are stocks exclusively for domestic investors listed on the Shanghai and Shenzhen stock exchanges and are traded in yuan. Only institutional investors with QFII (Qualified Foreign Institutional Investor) status can participate.

China's market opening is also a background factor triggering the influx of foreign investors. Recently, China allowed 100% ownership of mainland securities firms by U.S. banks such as JP Morgan Chase and Goldman Sachs. As a result, Goldman Sachs was able to own 100% of Gao Hua Securities, a joint venture established in 2004 with Fang Fenglei, one of the major players in China's financial sector. David Solomon, CEO of Goldman Sachs, and other top executives stated in an internal announcement last month that this approval for 100% ownership marks a new chapter for their China business and that having a wholly-owned subsidiary enables them to pursue long-term growth and success in China.

In terms of bond investment, the inclusion of Chinese bonds in the world's three major bond indices appears to have been a positive factor. Chinese government bonds were included in the Financial Times Stock Exchange (FTSE) Russell's World Government Bond Index (WGBI) in March. Previously, they were also included in the Bloomberg Barclays Global Aggregate Bond Index (BBGA) and the JP Morgan Global Emerging Markets Government Bond Index (GBI-EM), meaning Chinese bonds are included in all three major global bond indices.

When included in an index, funds must increase their holdings of Chinese government bonds in proportion to the weight of Chinese bonds within the index.

Michelle Lam, an economist at Soci?t? G?n?rale, explained that the inclusion in global government bond indices, along with the fact that the Chinese yuan's value has not significantly depreciated despite recent economic uncertainties, likely underpins foreign investors' purchases of yuan-denominated assets.

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