Northbound funds tend to show a net inflow when high-quality stocks are wrongfully killed, which sends a positive signal.
The Shanghai Composite Index rose moderately by 4.8% throughout the year in 2021, and after entering 2022, the index fell by 7.65% in January, the worst month since October 2018, and the Shanghai Composite Index has risen about 3% so far in February since the end of the week-long holiday of the Spring Festival of the Year of the Tiger.
While Chinese investors remain wary of mainland stocks, international investors are increasingly positive about Chinese stocks. When talking about why he is willing to invest in China, Munger, an investment guru, once again expressed his bullish stance on China at the daily journal's annual shareholder meeting on February 16, saying that Chinese, advanced technology, Chinese companies are stronger than competitors, and cheaper than American competitors.
Speaking about his and Buffett's investment in China, Munger said, "Like other smart investors, Buffett likes to invest where he feels safe," adding that he is more comfortable investing in China than Buffett.
At a time when the Fed is tightening monetary policy, analysts believe that China has room for further policy easing after a series of previous easing measures. The growth of financing volume, the upward trend of stock valuations, the continuous inflow of foreign capital and the growth of profits of listed companies are all reasons to invest in A-shares.
1, smart money is flowing to A shares
There are signs that international investors are pouring more money into Chinese stocks. According to market research firm EPFR Global, a net inflow of China's A-share equity funds was US$16.6 billion in January, the fourth time since the outbreak that monthly inflows exceeded US$10 billion; in December last year, net inflows were close to US$11 billion.
Yang Delong, chief economist of Qianhai Open Source Fund, pointed out that after the sharp fall, many high-quality leading stocks fell out of value and began to attract some funds to enter, known as smart money northbound funds have flowed against the trend this year, and recently accelerated the pace of inflows to lay out some leading stocks with excellent performance, northbound funds often show a net inflow trend when high-quality stocks are mistakenly killed, which releases a positive signal.
Cameron Brandt, head of research at EPFR, said: "International investor interest in A-shares picked up in the fourth quarter of last year, with the latest wave of buying coming mainly from institutional investors, and the main factor driving this trend is that investors believe that investing in Chinese stocks in the emerging market sector this year seems more secure. ”
Analysts believe that the Chinese government is expected to introduce more support measures for economic growth, which is conducive to boosting market confidence. Jason Hsu, chairman and chief information officer of Rayliant Global Advisors, said: "The A-share market will benefit from fiscal stimulus and accommodative monetary policy, in contrast to the Fed, which is embarking on a tightening cycle. ”
2. International investment institutions are optimistic
Credit Suisse upgraded the rating of Chinese stocks to "overweight" in its 2022 Global Equity Investment Strategy Report, changing its stance on downgrading Chinese stocks about 12 months ago. Credit Suisse global strategist Andrew Garthwaite and his team wrote in the report: "China is easing monetary policy, while other countries are tightening policy, and China's economic growth momentum is strengthening. ”
As early as the end of September last year, the BlackRock Investment Institute expressed its bullish position on A-shares, and after entering 2022, other investment companies also joined the camp.
Bernstein's 172-page report in January said there were six reasons to include Chinese stocks in a global portfolio, including increased funding, accommodative monetary policy, room for equity valuations to rise, rare stock selection opportunities, continued inflows of foreign capital and rising earnings of listed companies.
HSBC analysts recently pointed out in a research report: "Investors are too pessimistic about Chinese stocks. HSBC upgraded its Chinese stock rating to "overweight" in October last year. Analysts at the bank believe that China's economic growth has flattened and the risks to the stock market have been reflected in the stock price, and now the valuation of the stock is very attractive, and even the valuation of some high-quality blue-chip stocks has become very attractive. Analysts expect the Shanghai Composite to rise 9.2 percent this year and the Shenzhen Component Index to rise 15.6 percent.
Kinger Lau, chief China equity strategist at Goldman Sachs, expects the MSCI China Index to rise to 14.6 times this year, with 16 percent upside. Lau wrote in the research report: "With the continuous opening and reform of China's capital market, the $14 trillion A-share market has become more investment-worthy. ”
3. There is still room for relaxation in China's monetary policy
Following the RRR cut at the end of last year and the interest rate cut at the beginning of this year, analysts believe that the Chinese central bank still has room to further ease policy.
Financial statistics and social financing data released by the People's Bank of China in January showed that RMB loans increased by 3.98 trillion yuan in January, an increase of 394.4 billion yuan year-on-year; the total amount of social financing increased by 6.17 trillion yuan, exceeding market expectations, an increase of 984.2 billion yuan year-on-year. The fact that the January credit union financing data exceeded expectations shows that stable growth is an important goal of the central bank, and also reflects the central bank's easing stance.
In addition, data released by China's National Bureau of Statistics on February 16 showed that China's year-on-year increase in CPI and PPI fell in January. Some analysts believe that the downward inflation will create space for Further Relaxation of Policies in China, and more easing policies are expected in the coming months, including further RRR cuts and interest rate cuts.
Guan Tao, global chief economist of BOC Securities, pointed out in an article published in the Shanghai Securities News on February 16 that this year, the Fed will accelerate the pace of monetary policy tightening due to comprehensive inflationary pressures, while the People's Bank of China needs to adhere to cross-cycle and counter-cyclical adjustments in order to stabilize growth, and comprehensively play the dual functions of the total amount and structure of monetary policy tools. If stable growth is really needed in the future, the People's Bank of China still has room to cut the RRR and cut interest rates.
Yang Delong, chief economist of Qianhai Open Source Fund, also pointed out that under the background of the Fed's monetary policy turning to tightening, the toolbox of the Chinese central bank has more tools available for moderate easing, which is invaluable in the eyes of central banks around the world, which is a positive factor for the performance of the stock market this year.
Wen | Contributor to the Chinese edition of Barron's Magazine Guo Liqun
Edit | Peng Ren
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