HONG KONG- Global fund managers sold China equities sharply in October despite further steps from authorities aimed at boosting the world’s second-largest economy, according to a report from Morgan Stanley that cited data from fund flow tracker EPFR.
China and Hong Kong equities saw a combined $3.1 billion in net outflow from active long-only funds last month, a third consecutive month of net selling exceeding $3 billion, the report, seen by Reuters, said.
“The outflows (are) mostly due to regional funds’ rebalancing out of China, in which European-domiciled funds led,” Morgan Stanley analysts led by Gilbert Wong said.
According to Morgan Stanley, persistent outflows have resulted in foreign long-only managers being their most underweight on China since 2018.
The report said European funds have offloaded about half of their holdings accumulated since late 2020 and that there had also been an acceleration in outflows from U.S.-domiciled funds in October.
Investors remain cautious on China’s economic recovery, particularly after manufacturing activity unexpectedly contracted in October.
The MSCI China benchmark slumped 4.3 percent last month, while the CSI 300 dropped 3.2 percent .
Stocks sold off include JD.com Xiaomi and China Construction Bank But bets were added to internet giants such as Alibaba and Baidu as well as to insurance firm AIA
Separately, Goldman Sachs prime services data showed hedge fund net allocation to China increased to 8.5 percent as of end-October, up from 8.1 percent at end-September.
Meanwhile, a record number of 1,145 Chinese firms have repurchased about 65.9 billion yuan ($9 billion) worth of shares listed in Shanghai and Shenzhen so far this year, Securities Times reported on Nov. 1. The buyback rush underlines investment confidence in China’s stock market, the state-run financial newspaper suggested.
Chinese listed firms spent about 60 billion yuan on share buybacks in 2022, Securities Times reported earlier this year.
Regulators in Beijing have been encouraging state funds and insurers to buy Chinese stocks. The China Securities Regulatory Commission on Nov. 1 said it will encourage more mid-to-long term capital to “actively participate” in the equity market.
Chinese regulators are reassembling a squad of domestic investors to help prop up the country’s frail stock market. A record number of listed firms led by battery giant Contemporary Amperex Technology (CATL) have joined the effort by repurchasing their own shares. Yet their relatively tepid spending so far this year suggests corporate support is half-hearted at best.
The benchmark Shanghai Composite Index .SSEC has dropped more than 10 percent in the past six months despite Beijing’s multiple policy moves to revitalize the $10.5 trillion market. Wealth fund Central Huijin said in late September it will raise its controlling stakes in major state banks as well as buying exchange-traded funds in the coming six months. Last week, the China Securities Regulatory Commission said it will entice more long-term capital to invest in mainland equities. It’s reminiscent of the “national team” of patriotic investors that assembled to try to counter the country’s 2015 stock market crash.