Fundamental analysis

Foreign investors flee China’s stocks


Foreign investors are about to start selling Chinese equities for the first time ever for the year as concerns about a lack of supportive policies from the Communist Party Congress and a renewed zero-COVID approach spook markets.

As data shows, foreign investors sold a record net of 17.9 billion yuan ($2.5 billion) of mainland shares via trading links with Hong Kong on Monday, which resulted in a small net outflow. If this continues until the end of this year, it would be the first annual fall since the stock connect program was launched in 2014.

Sell-offs hit markets on Monday, following the country’s twice-a-decade political event with the Hang Seng China index tumbling to the lowest level since the 2008 financial crisis.analytics6357b6a360e39.jpg

President Xi Jinping’s consolidation of power is seen as a serious risk. It was expected that the leadership reshuffle would lead to a continuation of key policies such as zero-COVID.

According to Bloomberg Intelligence analyst Marvin Chen, foreign sentiment on Chinese stocks is low now, as the party congress signaled no imminent changes to Covid-19 policies. “Markets may need to wait closer to the Central Economic Work Conference in December to see how the new leadership will address China’s economic challenges,” he said.

The Chinese bears are growing by the day as traders become skeptical of the country’s economic prospects amid strict COVID restrictions and the weak property sector. The benchmark CSI 300 index lost 2.9% on Monday amid a mass sell-off, despite China’s better-than-expected Q3 GDP results.

Investors are now waiting to see if new leadership can provide much-needed stimuli to stem further losses. Two economic meetings later this year – the Politburo gathering and the Central Economic Work Conference – will be closely watched for such policies.

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