The country’s stocks have been selling off of late despite a series of government stimulus measures
Investors poured nearly $12 billion into Chinese equity funds in the week ending this past Wednesday, Reuters reported on Friday, citing data compiled by Bank of America. It was the largest weekly inflow since 2015 and the second largest on record, according to analysts.
The inflow is a good sign for struggling Chinese stocks, which have lost about $6 trillion over the past three years amid the country’s economic troubles – such as deflation, debt and a crippling real estate crisis – following the Covid-19 pandemic. According to data cited by Reuters, onshore Chinese blue-chip stocks are currently trading near their lowest level in five years, while the Hong Kong benchmark is at its lowest in more than a year.
The latest surge allocations to Chinese stocks follows Beijing’s recent efforts to support the country’s economy, which have included measures to prop up stocks. The central bank announced earlier this week that it would reduce reserve requirements for banks, a move that frees up more liquidity for lending to the economy. Beijing additionally announced measures to ease the liquidity crunch facing real estate developers by allocating 2 trillion yuan ($278 billion) to buy their shares. Operations were also carried out in the foreign exchange market aimed at supporting the yuan.
Buying Chinese shares is currently “the world’s most enticing contrarian long trade’,” Michael Hartnett, the chief strategist of Bank of America’s global research team, told Bloomberg. Earlier, Bridgewater Associates told investors it was “moderately bullish” on Chinese stocks, while Hong Kong-based financial services company Gavekal said Chinese stocks offered the best value in the world, according to its note to Bloomberg.
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China’s economy, the second-largest in the world, grew by 5.2% last year, its slowest pace of expansion since 1990, with the exception of the three pandemic years through 2022. With the country’s property market still weak, economists largely forecast growth slowing further in 2024 to around 4.0-4.5%.
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