Nearly 90% of the foreign investment inflows into Chinese equity markets in 2023 has been withdrawn as sentiment crumbles amid concerns over the country’s growth trajectory and the impact of losses from the real estate sector.
Data gathered from Hong Kong Stock Connect and interpreted by the Financial Times, showed that since peaking at $33 billion in August, net foreign investment in China-listed shares has dropped 87% to just $4.3 billion.
China stock indices have had a tough year as growth concerns have built despite efforts by the People’s Bank of China to boost confidence in the financial system.
The Shanghai Composite is down 4.4% over the year, while the China A50 index has slumped 12% and the Hang Seng has fallen nearly 14%.
Meanwhile, the heaviest-weighted exchange traded funds that track China shares are down by similar amounts: BlackRock’s iShares MSCI China EFT (NYSE:MCHI) is down 13.8% year to date, while iShares China Large-Cap ETF (NYSE:FXI) is down 15.4% over the year.
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Investors Losing Confidence In Major Institutions
While the People’s Bank has tried to maintain its efforts at making China an attractive opportunity for foreign investment, the central bank is increasingly at odds with the central government.
Having made steps to align itself more closely with foreign central banks, including the Federal Reserve and European Central Bank, under the governorship of Zhou Xiaochuan between 2002-2017, the PBoC has become increasingly sidelined since the Covid pandemic.
Since March, the central government has put the PBoC under the control of the Central Financial Commission, a party-led oversight body.
At its monetary policy meeting on Thursday, the central bank said it would step up efforts to support the economy, maintaining ample liquidity in the financial system and guide credit growth and the development of the ailing real estate market.
Much of China’s current equity market woes are due to ongoing fragility in the country’s property sector. Around 30% of fund managers polled by Bank of America said in the December Fund Manager Survey that China’s real estate sector was now the most likely source for a systemic credit event.
The survey also showed that short-selling…
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