China's capital market attracts more foreign investment

By： Belt and Road Prtal Update：2022-05-27

Since the beginning of this year, the cross-border capital movement becomes more frequent and volatile due to the repeated global COVID-19 outbreaks and an increasing risk-off sentiment. However, China's capital market and Chinese companies are more appealing to overseas investors, reported Chinanews.com on Monday.

Bridgewater Associates, an asset management firm, increased its stake in several China concept stocks in the first quarter. Meanwhile, China Consumer Fund under Fidelity International largely added to its holdings of Chinese internet companies' stocks. Moreover, JPMorgan's China Fund bought a large amount of China concept stocks and upgraded the ratings of several such stocks.

Travis Fu, Equity Portfolio Manager of Schroder BOCOM Wealth Management, said that the continuous innovation and increased productivity of Chinese tech companies can facilitate policy adjustment around the world, which explained Chinese stocks' growing appeal.

-- Net inflow of long-term capital into A-share market

In the A-share market, Chinese stocks are attracting more overseas investors.

In 2021, the A-share market saw a net inflow of foreign capital totaling 384.6 billion yuan, the highest in the past five years.

Under a connectivity mechanism, which allows domestic and overseas securities firms or brokers trade eligible shares, nearly 90 percent of the stocks in the STAR market, also known as the sci-tech innovation board, were included in three leading international stock indexes.

So far this year, long-term foreign funds have maintained net inflows into the A-share market.

Morgan Stanley recently reported that A-shares will benefit from the potential policy easing in the short run and will be in step with long-term growth opportunities. Standard Chartered also noted that due to policy support and relatively low valuation, Chinese stocks might gradually overpass other stocks in the global market.

China's financial sector stays open based on high-level development, which will bring a lot of opportunities for foreign financial institutions, said Hong Jun, vice president of Standard Chartered Bank (China) Limited.

-- International asset management firms continue expansion in Chinese market

Aside from the stock market, international capital institutions are also actively seeking expansion in China's asset management and bond markets.

Recently, four asset management firms won approval for the qualified foreign limited partnership (QFLP) pilot scheme. Meanwhile, several other institutions are planning to increase their quotas under the scheme to expand their share in the Chinese market.

As of the end of April, 1,035 foreign institutions have entered China's interbank bond market. Since the beginning of this year, the monthly spot trading of foreign institutions never went below 1 trillion yuan, a record made at the end of last year.

"For large institutional investors who follow the main global indexes, investing in China's assets is not an option but a must. We don't think there are radical changes in the fundamentals of China's economy," said Eugene Qian, chairman of UBS Securities.

Whether in China's stock market or bond market, the investment of foreign capital reflects foreign institutions' focus on the Chinese capital market and their determination to shore up investment. Their determination in fact stems from the confidence in the long-term upward trend of China's economy and they have cast a "vote of confidence" in China's real economy and the capital market, said Zhang Yuewen, a senior researcher with the Institute of Finance & Banking under the Chinese Academy of Social Sciences.

-- Continuous opening-up guarantees promising future for foreign investment in China

With the opening of China's financial sector and improvements in cross-border investment policies, foreign investment channels in China's financial market are expanded. A batch of new measures concerning the opening-up will be implemented soon.

As suggested by a document about high-quality development of the publicly offered funds issued by the China Securities Regulatory Commission (CSRC), support should be provided for quality overseas financial institutions willing to make long-term investment in China's capital market in setting up fund management companies or expanding their shareholding ratios.

The CSRC will introduce more initiatives, including expanding the connectivity between domestic and international capital markets, facilitating overseas institutional investors to take part in China's exchange bond market, and steadily adding the varieties of commodity and financial futures.

The People's Bank of China, the CSRC, and the State Administration of Foreign Exchange will also advance opening-up to a higher level on the basis of the existing policies.

China is the world's second-largest stock market and the second-largest bond market, with foreign investors holding about 4.5 percent of circulation market value of A-share market and about 3 percent of China's bond market.

There is much space for more foreign investment, believed experts, adding that with the orderly opening-up of the financial sector, foreign institutions will have access to more areas in China.