China’s sudden stock rally sucks money from rest of Asia
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A wave of money that earlier left Chinese equities in favour of stocks from Japan and South-east Asia is poised to reverse course.
PHOTO: BLOOMBERG
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Singapore - A strong rebound in Chinese stocks is set to trigger a shift in global portfolios as some investors rush to catch the rally.
A wave of money that earlier left Chinese equities in favour of stocks from Japan and South-east Asia is poised to reverse course after Beijing’s latest stimulus blitz, according to market watchers. The shift is already under way: Shares in South Korea, Indonesia, Malaysia and Thailand posted net outflows last week, while BNP Paribas said over US$20 billion (S$25.8 billion) was withdrawn from Japan’s equities in the first three weeks of September.
The nascent rotation may spell the end of a stellar run for Asia excluding China equities, which previously benefited as money managers hunted for better returns outside the world’s second-largest stock market. For much of 2024, Taiwan shares got a boost as chipmakers soared while Indian stocks rallied on the back of quickening economic growth. South-east Asia’s markets were lifted by lower US interest rates.
“We are trimming our long positions across Asia to fund China purchases,” said Mr Eric Yee, senior portfolio manager at Atlantis Investment Management in Singapore. “Everyone is doing so. It’s a good policy-driven recovery from rock bottom. You wouldn’t want to miss out on such an opportunity.”
The MSCI China Index has risen more than 30 per cent from a recent low as the authorities announced a barrage of measures to revive growth. Trading turnover in both China and Hong Kong hit a record high on Sept 30.
Attractive valuations have also helped. Even with the recent rally, the MSCI China gauge is still trading at 10.8 times forward earnings, below its five-year average of 11.7 times.
Mutual funds worldwide have a 5 per cent allocation in Chinese equities in aggregate, the lowest level in a decade, according to EPFR data as of end-August, underscoring room for funds to boost their holdings.
“We believe some foreign investors are reducing their Japan overweight and reallocating back to China,” BNP strategists including Mr Jason Lui wrote in a note on Oct 2.
To be clear, the shift is still at an initial stage, and BNP notes that there has not been a meaningful withdrawal of foreign money from India and emerging market excluding China products.
Singapore-based SGMC Capital’s fund manager Mohit Mirpuri said that while it is still early days, there could be “an argument for a rotation out of Japan or India into China”.
“China will be the standout performer by the end of 2024. The current momentum is hard to ignore.” BLOOMBERG
