Only two months ago, stock investors on China’s social-media platforms were clamouring for state-run funds to intervene and rescue investors from their unprecedented losses. Lately, some have been praising foreign money managers for the US$1 trillion turnaround, while others warned of pitfalls.
Global funds have purchased 81 billion yuan (US$11 billion) worth of onshore stocks through the Stock Connect link since November. The CSI 300 Index of onshore stocks jumped 12.5 per cent last month in the biggest revival in two years. The index climbed 3.3 per cent last week, aided by another US$1 billion of foreign inflows, according to Stock Connect.
Goldman Sachs, among the more bullish Wall Street firms, forecasts the fund inflows to increase in 2023. State-run funds, or the “National Team” in market parlance, have been conspicuously missing, it noted, while bets on Beijing’s zero-Covid pivot lifted stocks from bear-market territory.
“Foreign investors took action and successfully bottom-fished the Chinese market,” said Li Daxiao, chief economist at Yingda Securities in Shenzhen, who has more than 6 million followers on his Weibo social-media platform. “It’s a pity that mainland investors have missed the chance.”
Morgan Stanley upgraded stocks in the MSCI China Index to overweight on December 4, after staying neutral for almost two years. Bank of America analysts recommended buying any dip caused by doubts about China’s reopening path, while Montreal-based Alpine Macro turned bullish on China about six months ago.
While the “Buy China” chorus grew louder, China’s state-run funds with an estimated 1 trillion yuan war chest, have remained quiet for almost two months.
“Our national team activity indicator suggests no [market] intervention this week,” Goldman analysts including Kinger Lau said in a note on December 2. The team last intervened in mid-October, when the Communist Party held its twice-a-decade Party Congress to reshuffle the top leadership, the analysts added.
“The absence of market intervention has disappointed many mainland investors,” said Gary Ng, a senior economist at Natixis in Hong Kong. “But the Chinese government probably thought the slump [in October] would not impact economic stability, and decided not to burn the money.”
Instead, the government might have reserved its financial ammunition by intervening in the currency market to prevent the offshore yuan from sliding further from a record-low against the US dollar, Ng added.
The stock rebound has some sceptical investors questioning whether global money managers are really in the market for the long haul, or just simply trying to talk up the market for a quick gain.
“Whenever foreign funds turn bullish on Chinese stocks, the market is likely to experience a correction to the downside,” Wu Xiaoping, a former money manager at China International Capital Corp, said in a blog on Wednesday. “Foreign funds only let the news out after buying the dip, leaving individual investors to help sustain the rebound while they exit.”
Wu, who has more than 1 million followers on his Weibo platform, China’s equivalent to Twitter, said local investors should be wary of short-term risks as there is not much room for stocks to continue running up.
Tianjin Stock Knight, who has with almost 7 million followers on Weibo, said in a recent post that foreign fund inflows represent a good sentiment barometer and predictor of future government policies. Yet, the blogger also warned of sudden market pullback.
“Overseas funds have changed their tactics by turning into day traders [instead of long term holders]. Retail investors should lock in profits first.”
With additional reporting by Zhang Shidong.