China Stocks Boom As Foreign Investors Return to Power a V-Turn After Covid Fiasco

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Foreign investors are showing renewed interest in the Chinese stock markets, so much so the benchmark CSI 300 Index has hit the highest level in almost five months. For comparison, the benchmark Chinese index had lost almost 40 percent in the ten months up to October last year.

Robust Rally

The first two weeks of the year 2023 has already seen a market rally in China, which was part fueled by the foreign players, who had been off the market in the last year owning to China's lingering Covid-19 threats and serious concerns about the direction of politics.

Shanghai Stock Exchange
Shanghai Stock Exchange Wikimedia Commons

With foreign fund managers reversing bearish positions, the Chinese stocks have become more attractive, and the share of foreign investment in the overall Chinese capital markets is inching up.

According to Nikkei Asia estimates, the foreign investors bought a net 64 billion yuan ($9.5 billion) in the first nine trading days of 2023. This is way more than the 90 billion yuan investment in the whole of 2022. Incidentally, the year 2022 saw the lowest foreign capital flows into China since 2017.

Hong Kong stock exchange
Hong Kong stock exchange Wikimedia Commons

It's V-Turn, Says Analyst

China saw a market rally in November and it got stronger after the lifting of the zero Covid restrictions. Even the spike in infections and reports of a large number of Covid deaths did not deter the markets from performing. Some analysts think China has put the Covid-related uncertainties behind. "What's going on in China looks like it's not even a U-turn on COVID, it's a V-turn on COVID," said Robert Buckland, chief global equity strategist at Citi Investment Research, according to Nikkei Asia.

Some of the biggest foreign money flows were witnessed in companies like liquor firm Wuliangye Yibin Co, spirits maker Kweichow Moutai Co and Ping An Insurance Group Co. While foreign investors funneled $1.8 billion into Wuliangye Yibin shares, they bought more than 10 billion yuan worth of Kweichow Moutai, according to data compiled by Bloomberg.

China forex reserves rop
Chinese 100 yuan banknotes and a U.S. one dollar banknote are seen in this picture illustration in Beijing, China, January 21, 2016 Reuters

CSI 300 Rises 16%

China's benchmark CSI 300 has risen as much as 16 percent after it hit a 2022 low in October, impacted by the political uncertainties around the Chinese Communist Party Congress and the nationwide protests over the extended zero-Covid policies of Xi Jinping. Similarly, Hong Kong's Hang Seng Index, rose 48 percent since October lows, after losing about 58 percent up until then.

Does this turnaround mean all is well with China? Not exactly so, according to analysts. "I wouldn't say that investor sentiment or their positioning is even back to neutral ... says Jian Shi Cortesi of Zurich-based GAM Investment, according to Nikkei Asia.