Foreign Funds Flowing into Mainland China's Stock Market Total 30 Trillion Won This Year

[Impact and Outlook of China's Reopening] Shanghai and Shenzhen Composite Index
Focused Buying of CATL, Ping An Insurance, Guizhou Moutai, and More

Editor's NoteAmid concerns over a global economic slowdown, China's reopening has emerged as a major variable for a global economic rebound. While some view China's pursuit of qualitative growth under its economic normalization agenda with skepticism regarding the economic impact, many expect that the economic circulation driven by increased Chinese consumption will have a positive effect on the global economy. The benefits that the Korean economy may gain from China's reopening are expected to vary across sectors such as semiconductors, aviation, and distribution. However, there are also observations that efforts to exclude China from the global supply chain due to US-China tensions could limit the economic effects of the reopening.

With the easing of COVID-19 quarantine regulations, the launch of Xi Jinping's third term, and the conclusion of China's largest political event, the "Two Sessions" (National People's Congress and Chinese People's Political Consultative Conference), the effects of reopening (resumption of economic activities) are expected to become more pronounced. Amid this, foreign capital is flowing into the Chinese stock market, drawing attention. There is growing interest in whether the effects of China's reopening will also act as a tailwind for the Korean stock market.

According to Samsung Securities Research Center on the 15th, as of March 7, the cumulative net purchases by foreigners in the Chinese mainland stock market (Shanghai Composite Index + Shenzhen Composite Index) this year amounted to 160.3 billion yuan (approximately 30.5 trillion KRW). This exceeds the 90 billion yuan recorded during the same period last year. Since December last year, foreign investors have shifted to a net buying position in the Chinese mainland stock market. Foreign investment banks' views on the Chinese stock market have also changed 180 degrees. According to major foreign media such as Bloomberg, JP Morgan, Morgan Stanley, and Goldman Sachs have all upgraded their investment ratings on Chinese stocks.

Foreign capital has concentrated mainly on large-cap stocks by sector. Over the past month (February 6 to March 7), the stock most purchased by foreigners in the Chinese mainland stock market was CATL (3.6 billion yuan), a leading player in secondary batteries. Next, 1.64 billion yuan of foreign capital flowed into Ping An Insurance, known as the "Samsung Fire & Marine Insurance" of China. Guizhou Moutai (1.5 billion yuan), China's top luxury liquor brand and a leading stock in the Chinese market, ranked third in net purchases by foreigners. Most of the top 10 stocks are either representative Chinese consumer goods or beneficiaries of the resumption of economic activities.

Hwang Sun-myung, a researcher at Samsung Securities, analyzed, "Since the Chinese government stated at the Two Sessions that boosting consumption is an indispensable factor for economic growth, retail consumption growth following China's reopening is a natural step toward normalization, although there may be a time lag."

Moreover, the representative beneficiary sectors identified by Chinese authorities at the Two Sessions include platforms, IT, hardware, consumer goods, and electric vehicles. In the securities industry, the representative beneficiary stocks among these sectors are Baidu (platform), Tencent (platform), Yongyou Network (IT), SenseTime (IT), Hikvision (hardware), Jiangsu Changjiang Electronics Technology (hardware), Proya (consumer goods), Shanghai International Airport (consumer goods), BYD (electric vehicles), and CATL (electric vehicles).

As foreign capital floods into the Chinese stock market, there are also forecasts that South Korea, China's largest trading partner, will benefit. Park Sang-hyun, a researcher at Hi Investment & Securities, stated, "Although foreign capital inflows into the Chinese stock market slowed in February after rising in January, the reopening effects are becoming visible as Chinese economic indicators continue to exceed expectations. This is expected to act as a driving force that sequentially strengthens the inflow of foreign capital into the domestic stock market."

In fact, the return of foreign investors to Asian stock markets is increasingly being observed. In the second half of last year, foreign investor funds mainly flowed in seeking currency gains amid a strong dollar, but since the end of the year, foreign investors who had maintained a low weighting in the Asian region due to China's reopening are also returning. According to NH Investment & Securities Research Center, about 15-21% of the net selling amount by foreigners since 2020 has returned. The sectors purchased by foreign investors in the Korean stock market are mainly semiconductors, financial stocks, and defensive stocks.

However, the securities industry expects that the preferred sectors for foreign investors going forward are likely to be those that significantly reduced their weighting after the COVID-19 outbreak. Advice is emerging to focus on representative reopening beneficiaries such as hotels and leisure, airlines and casinos, cosmetics, as well as steel and apparel sectors that can benefit from improvements in the Chinese economy. With the government lifting the pre-entry COVID-19 testing requirement for arrivals from China (including Hong Kong and Macau), there are forecasts that Chinese tourists will increase from April. In fact, major airlines are reportedly planning to increase Korea-China routes to over 200 flights per week. Kim Young-hwan, a researcher at NH Investment & Securities, said, "If the Chinese government maintains an appropriate real estate stimulus policy, considering the base effect, the turnaround point is expected to be in the second quarter, and improvements in the steel and non-ferrous metals sectors can be anticipated." He also advised, "Among China-related consumer stocks, attention should be paid to those engaged in original equipment manufacturing (OEM) business or pursuing localization strategies in the Chinese market."

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