China’s Economy Is Slowing, So Why Is Money Flooding Into Its Stock Market?

- Over the past year, China's economy and its stock market have gotten beaten up pretty badly. Its two largest stock indexes, the Hang Seng and the Shanghai Composite, are both down double digits over the past year, and that didn't just trail big gains in US stocks. MSCI's All Country World Index gained 22% in 2023. That was more than 30 percentage points better than MSCI China's returns, so you'd probably expect investors to be pulling money out of China, but money's actually flooding into the country's stock market. I'm going to explain why some investors are bullish on what looks like a weakening China, how much money global investors are pouring into Chinese stocks, and why the big buying trend may not be what it seems. Let's get into it. Chinese stocks didn't just underperform the rest of the world, they underperformed badly. So far in 2024, data suggests China's economy is still facing real problems. Consumer prices fell by the most since 2009 in January. Manufacturing activity is shrinking and the country's property market is in dire straits. But some investors have argued that makes now a great time to buy into China. Analysts at Australia's Platinum Asset Management say the best long-term returns are found in parts of the market that are unloved, and that today the market's attitude on Chinese stocks is extreme. In a note to clients, Platinum's co-chief investment officer Andrew Clifford says that the strength of Chinese stocks, "the profits they're generating, their market positions and attractive valuations outweigh the current geopolitical and economic negatives." Clifford adds that in oversold markets like China, a recovery, when it comes, can underpin excellent longer-term performance. Similarly, Nashville-based financial firm AllianceBernstein, which manages $725 billion of assets recently spoke out in favor of Chinese stocks. AB analysts say their long-term outlook is promising and urge clients not to be deterred by troubles in China's economy and housing sector. So far in 2024, it's looked like global investors have gotten bullish on China in a big way. Chinese stock funds had the largest weekly inflow of money in close to nine years during the last full week of January, according to Deutsche Bank. Of the $18 billion of net inflows that went into global equity funds, 12 billion went into Chinese funds. And Bank of America's data found that in early February, emerging market stocks saw a record $20.8 billion inflow. $19.8 billion of that inflow went to Chinese equities. But the recent buying may not be all about investors getting bullish. B of A analysts noted that much of the inflow to Chinese stocks was likely driven by Chinese public funds, which are acting on behalf of the government. Central Huijin Investment, part of the state-owned China Investment Corp, announced earlier this month that it had increased its holdings of Chinese stock funds and planned to ramp up purchases in the future. And the new chairman of the China Securities Regulatory Commission met with investors recently to assure them that CSRC will respond to market concerns. This all suggests that not only is China buying stocks to help underpin its equity market and stop the sell off, but its government is planning to make some changes. That could lead to Chinese stocks reversing 2023's big declines and moving towards the long-term gains that some asset managers are predicting. But other global investors are still waiting to see the proof in the pudding. If there's one thing investors have learned over the years, it's that when it comes to China, nothing is certain. (pensive music)

Channel: Dion Rabouin | WSJ

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Keywords: china, china news, china economy, china stock market, china stock market today, china economy collapse, china economy 2024, Shanghai Composite, Hang Seng, hang seng index, hang seng bank, shanghai composite index, shanghai, market, stocks, stock market, chinese stocks, bullish, world news, business news, consumer prices, china manufacturing, AllianceBernstein, global investors, chinese funds, deutsche bank, Central Huijin, China Securities Regulatory Commission, wonews

Id: hziZ0PRwoUQ

Length: 3min 26sec (206 seconds)

Published: Wed Feb 28 2024