Foreigners hold sway over China share trading

An investor monitoring stock price movements at a securities company in Shanghai earlier this month. MSCI will expand the weighting of China-listed shares in benchmark indexes tracked by global investors at the end of this month, a move analysts pred
An investor monitoring stock price movements at a securities company in Shanghai earlier this month. MSCI will expand the weighting of China-listed shares in benchmark indexes tracked by global investors at the end of this month, a move analysts predict will attract overseas capital.PHOTO: AGENCE FRANCE-PRESSE

Stocks no longer immune to shifts in global mood as foreign investors' influence grows

HONG KONG • The record pace of foreign selling in China's equities matters now more than ever.

While overseas traders are quickly souring on yuan assets, they have also never wielded this much influence over the onshore stock market.

Index inclusions and expanded quotas mean they drive a record 10 per cent of daily turnover, according to data compiled by Bloomberg.

That proportion is even greater for favourites, like Kweichow Moutai, at 34 per cent on a monthly basis.

Integrating China's capital markets into the global financial system has been a priority for the country's policymakers since late 2017.

In the year since MSCI first added mainland shares to its benchmarks, China has been expediting measures that make it easier for overseas investors to manage risk.

Their growing influence means that mainland stocks, which have historically been somewhat immune to shifts in global sentiment, are losing that resilience.

"The recent outflows of foreign capital are affecting sentiment onshore," analyst Chao Jiang at Haitong Securities wrote in a note this month.

"Foreign investors tend to sell A-shares in the short term when global stocks drop. Their risk appetite is more likely to be affected by what's happening in other major markets."

MSCI will expand the weighting of China-listed shares in benchmark indexes tracked by global investors at the end of this month, a move analysts predict will attract billions in overseas capital.

Still, foreign investors tend to stick with mega caps, generally referring to companies with a market capitalisation above US$200 billion (S$276 billion), like Jiangsu Heng-rui Medicine.

Foreign trading accounts for nearly 40 per cent of the stock's average monthly turnover over the past year, data shows.

Foreign investors held about 1.15 trillion yuan (S$230 billion) of mainland shares as of the end of last year, according to the latest data the central bank has on its website.

That puts them on a par with China's mutual funds, which owned about 4 per cent of the market, according to Bloomberg calculations.

Foreign money has been flowing out of the country's stock markets since late March, just before a US$1 trillion sell-off started.

Overseas investors have sold more than 48 billion yuan of equities this month as of yesterday morning, in line to smash the monthly record of 18 billion yuan set just last month.

Midea Group, Ping An Insurance Group, Kweichow Moutai and China Merchants Bank are the most-bought stocks via the trading links in the past two years, data compiled by Bloomberg shows.

They have been good bets, too. The four returned about 70 per cent on average during the period, compared with a 5 per cent gain by the CSI 300 Index.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 24, 2019, with the headline 'Foreigners hold sway over China share trading'. Print Edition | Subscribe