Foreigners' 'China Fund Run'... Longest Period of Selling Chinese Stocks in 7 Years

Global major investors are rapidly withdrawing from the Chinese stock market. As concerns over an economic crisis triggered by the Chinese real estate sector spread, foreign investors' sell-off of Chinese stocks has reached the longest period in seven years, accelerating the 'China fund run.'

원본보기 아이콘

According to Bloomberg on the 23rd (local time), foreigners have net sold mainland Chinese stocks for 13 consecutive trading days up to the 23rd. This is the longest selling streak since Bloomberg began compiling statistics in 2016. During this period, the net selling volume of Chinese stocks reached a total of $10.7 billion (approximately 14.2 trillion KRW).

After the Chinese Communist Party expressed its intention to stimulate the economy last month, optimism spread in the Chinese stock market. However, the market has rapidly cooled since early this month due to the default of private real estate developer Biguiyuan (Country Garden). The Shanghai Composite Index has fallen 6.2% this month and is on the verge of breaking the psychological 3,000-point level. The CSI300 Index, composed of the top 300 companies by market capitalization listed on the Shanghai and Shenzhen stock exchanges, dropped 7.8% during the same period, making it one of the worst-performing global benchmark indices this month.

The plunge in the Chinese stock market is a result of overseas funds intensively selling blue-chip Chinese stocks for two weeks following Biguiyuan's failure to repay debt interest on the 7th. Foreign investors net sold about 6.2 billion yuan worth of shares in Kweichow Moutai, China's largest liquor company, between the 7th and 18th. Consequently, this stock became the most sold by foreigners through cross-trading on the Hong Kong Stock Exchange, which allows trading of Shanghai and Shenzhen stocks. Foreigners also sold approximately 4.7 billion yuan each of Longi Green Energy Technology and China Merchants Bank shares, and heavily sold Wuliangye (4.2 billion yuan), Ping An Insurance (3.1 billion yuan), and BYD (2.9 billion yuan). The top 10 stocks most sold by foreigners during this period were all included among the top 50 stocks in the CSI 300.

원본보기 아이콘

Bloomberg reported, "The CSI 300 Index is trading at its lowest level since November last year as optimism quickly evaporated after the July Politburo meeting," adding, "Foreign investors who entered the market en masse at that time are now leaving due to disappointing economic indicators and ineffective stimulus measures."

The sell-off of Chinese stocks by foreign investors shows no signs of abating. On the 23rd alone, foreigners sold an additional 10.5 billion yuan worth of Chinese stocks. As the outlook darkens that the Chinese economy may fall into crisis beyond recession, global funds have begun reducing their exposure to China within emerging market funds. Li Bei, founder of Shanghai Bansha Investment Management, a major Chinese hedge fund, criticized this trend, saying, "Global capital is driving the plunge in Chinese stocks," and called it "a purposeless swarm causing market volatility."

원본보기 아이콘

With China entering a deflationary phase due to shrinking domestic demand and employment, compounded by fears of defaults in the real estate sector, the 'China exodus' of foreign investors is expected to continue. Global investment banks have already been revising down their growth forecasts for China. Citigroup recently lowered its annual growth forecast for China this year from 5.0% to 4.7%. Prior to this, JP Morgan, Barclays, and others also downgraded their annual growth forecasts to the 4% range following the Biguiyuan incident.

Meng Lei, a China strategist at UBS Securities, said, "Overseas investors are lowering their growth expectations following recent data and the government's limited measures to contain the real estate crisis."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.