China Shifts to Supportive Policy... Plus Returns Emerging in China Funds

Over 170 China Funds with Assets Over 1 Billion Record 0.25% Return in Last Month
People's Bank of China Lowers Reserve Requirement Ratio by 0.5%P
Positive Assessment on Real Estate Risk Easing
Rotation Flow Expected in Q1 Next Year

[Asia Economy Reporter Song Hwajeong] Recently, as the Chinese stock market has shown signs of recovery, the returns on China funds have also turned positive, raising expectations for investments next year.

According to financial information firm FnGuide on the 14th, as of the 10th, the recent one-month return of 170 China funds with assets under management of over 1 billion KRW was 0.25%. China funds had consistently recorded poor returns this year, with -4.89% since the beginning of the year, -7.28% over the past six months, and -3.17% over the past three months, but they are now showing signs of a turnaround. Considering that most major regional and country funds recorded negative returns over the past month, this is a favorable performance. During this period, only Brazil (0.56%) funds and China funds posted positive returns.

The recovery in China fund returns is attributed to the Chinese stock market's successful rebound and continued strength. The Shanghai Composite Index, which rose to the 3,700 level in September, fell to the 3,400 level last month but has since bottomed out and rebounded, touching the 3,700 level intraday yesterday, showing a clear recovery trend. The Shanghai Composite Index rose 4.18% over the past month.

This positive impact on stock prices is also seen as a result of the Chinese government lowering the reserve requirement ratio (RRR) recently and confirming a regulatory easing and economic stimulus stance at the Central Economic Work Conference held last week. On the 6th, the People's Bank of China announced that from the 15th, it would lower the reserve requirement ratio for financial institutions by 0.5 percentage points (50 basis points). Lee Da-eun, a researcher at Daishin Securities, said, "The expansion of liquidity supply will help mitigate the shocks in the real estate and financial markets, which have become volatile due to the Evergrande risk," adding, "With the Medium-term Lending Facility (MLF) support funds maturing on the 15th and the bond maturities of Chinese real estate companies concentrated in the first and second quarters of next year, the risk of liquidity crunch leading to widespread real estate insolvency due to weakened investor sentiment will decrease."

Jeon Jong-gyu, a researcher at Samsung Securities, explained, "Despite Evergrande's limited default declaration last week, the Chinese stock market showed a relatively stable trend because the Chinese government's active intervention began while Evergrande's bankruptcy was anticipated," and added, "Through the recently concluded Economic Work Conference last weekend, the Chinese leadership made the shift to a more supportive policy stance clearer."

The Chinese stock market is expected to experience a rotation trend until the first quarter of next year. Park Su-hyun, a researcher at KB Securities, said, "Signals of industrial regulation easing and the possibility of slowing down environmental policies confirmed at the Economic Work Conference suggest a rotation trend until the first quarter of next year," and predicted, "Sectors such as Baijiu, healthcare, education, and finance, which saw widened declines due to short-term regulatory concerns, will rebound."

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