Analysis: Global investors call time on their exodus from China

Zynex

01/10/2024 24:01

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      China's latest stimulus entices big investors back
    

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      Outflows from China funds are moderating, Lipper data show
    

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      Disconnect between China valuations and growth drive
    

  
    By Naomi Rovnick
       LONDON, Oct 1 (Reuters) - Global investors are preparing
to stake bets on China again, in a major sentiment shift sparked
by Beijing's drive to reverse its economic slowdown and revive
long term interest in its stock markets. 
    It is early days and few money managers expect a Chinese
growth boom anytime soon. But government moves to entice more
cash into equities and jolt consumer spending have boosted the
appeal of still-low Chinese company valuations, said investors
at groups overseeing more than $1.5 trillion of client funds
between them.
    "We're going to be very disciplined but in aggregate we feel
there's more upside than downside," said Gabriel Sacks, emerging
market portfolio manager at Abrdn  ABDN.L , which manages 506
billion pounds ($677 billion) of assets. 
    He said the group had bought China stocks "selectively" last
week and would wait for more detailed policy plans from Beijing
following some unusually candid economic support pledges that
generated a sharp stock market rally in recent days. 
    China's factory activity shrank for a fifth straight month
and the services sector slowed sharply in September, suggesting
Beijing may need to move urgently to meet its 5% 2024 growth
target. 
    
    PAST PEAK PESSIMISM? 
    Long term institutional investors mostly stayed on the
sidelines last week as hedge funds sent Chinese stocks surging
to cheer a stimulus bonanza, data sent to clients by Goldman
Sachs strategist Scott Rubner showed. 
    Mutual funds' China equity holdings dwindled to 5.1% of
portfolios, a decade low, in late August, Rubner said. 
    Chinese consumer confidence has taken hard knocks from a
property crisis rooted in President Xi Jinping's moves to stop a
pile of risky real estate debt estimated at more than $1
trillion from growing. Meanwhile, U.S.-China tensions have
escalated. 
    But investors reckoned the tide was turning after Beijing
authorities promised to spend as necessary to hit the 5% growth
target. They also eased some home-buying restrictions, cut bank
lending rates and offered brokers cheap funds to buy stocks. 
    "There's too much of a disconnect between what (Chinese
stock) valuations are pricing in and that improving policy
narrative," said Natasha Ebtehadj at Artemis Fund Managers.
    She added that she had topped up her Chinese equity holdings
in the last few days and taken some new positions.
     
    RALLY ON? 
    Chinese stocks had their best daily gain since 2008 on
Monday but investors cautioned against expecting more such
blistering short term moves. 
    "This is a technical, liquidity driven rally," said George
Efstathopoulos, a Singapore-based portfolio manager at Fidelity
International, adding it was likely caused in part by short
sellers unwinding bets on share price declines. 
    "There probably is a lot of short covering, there's probably
a lot of hedge funds jumping in for short term returns," Abrdn's
Sacks said. 
    Investors pulled a net $1.4 billion out of greater China
equity funds tracked by Lipper so far in 2024, reversing all of
the inflows from 2023, a year marked by un-met hopes for a
consumer spending surge after strict COVID-19 lockdowns ended. 
    Efstathopoulos said he would wait for Chinese consumer
confidence to rise before buying more Chinese stocks. 
    Mark Tinker, chief investment officer at Toscafund Hong
Kong, a hedge fund, said Beijing's latest measures showed China
might build sustainable household demand rather than chase quick
growth with another property or infrastructure boom.
    "Growth at 5% is not worth it if all you are doing is
encouraging (more) destabilizing leverage," he said.  
    Luca Paolini, chief strategist at Pictet Asset Management,
which oversees more than 260 billion euros ($291 billion) of
client funds, said investors may have overlooked prospects of
U.S. rate cuts boosting global demand and Chinese exports. 
    The U.S. Federal Reserve on Sept. 18 kicked off a long
awaited monetary easing cycle with a hefty 50 basis points rate
cut. 
        "What we are telling our clients this week is that if
you have nothing (in China) you may want to add some positions,"
Paolini added.   
    Noel O'Halloran, chief investment officer of KBI Global
Investors, said he began buying Chinese stocks this summer on
valuation grounds and would not take profits yet. 
    "In terms of allocations to China, it's too early for many
people to change their allocations but I think the direction can
only go one way, which is up."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Outflows from China funds moderate as pessimism fades    https://reut.rs/3BofCZL
China & Hong Kong stocks make a comeback    https://reut.rs/3TQvYjX
CHINA-ECONOMY    https://reut.rs/3BuLqvK
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 (Reporting by Naomi Rovnick; editing by Dhara Ranasinghe and
Christina Fincher)
 ((Naomi.Rovnick@thomsonreuters.com;))