Giants are long Chinese assets, and Hong Kong stocks have taken the lead in breaking out

According to the latest report from the Institute of International Finance (IIF), in March 2024, China's stock and bond markets received net purchases from foreign funds for the first time since June last year, reaching $1.7 billion and $2.1 billion, respectively. This phenomenon indicates a significant increase in foreign interest in Chinese assets.

Historically, foreign interest in China's bond market has continued to grow. For example, foreign investors have increased their holdings of China's onshore bonds for four consecutive months, reaching a total of 490 billion yuan. In addition, foreign investors continue to be optimistic about China's bond market, and have been net buyers of mainland bonds for nine consecutive months. This continued increase in holdings reflects foreign investors' confidence in China's bond market and their expectations for future returns.

In the stock market, the inflow of foreign capital also showed a positive trend. For example, the net purchase volume of northbound funds in February has exceeded the sum of the whole of 2023, and the net purchase amount in March reached 66.43 billion yuan, exceeding the 43.7 billion yuan in the whole of 2023. This shows that foreign investors are not only optimistic about China's bond market, but also have a positive view of China's stock market.

In addition, many foreign institutions generally have a high evaluation of Chinese assets. For example, Timothy Moe, chief equity strategist at Goldman Sachs Asia Pacific, maintained an "overweight" rating on the A-share market and expects A-shares to grow by 20% to 40%. This positive assessment could further attract FDI inflows.

Foreign investors' positive attitude towards Chinese assets and actual net buying behavior, especially in the stock and bond markets, show foreign confidence in the Chinese market and long-term investment intentions. This trend is likely to continue, especially in the current global economic environment, where the relative stability and growth potential of the Chinese market may attract more foreign capital inflows.

What are the specific reasons for the net buying of China's stock and bond markets by foreign investors in March 2024?

The specific reasons for the net purchase of foreign capital in China's stock and bond markets in March 2024 mainly include the following:

1. Fed rate cut expectations and RMB internationalization: Many foreign institutions are optimistic about China's bond market, believing that as the Fed is expected to cut interest rates and the pace of RMB internationalization accelerates, foreign investors are expected to continue to buy Chinese bonds on a net basis in 2024.
2. Global funds return to China's stock market: Northbound funds bought 1.553 billion yuan throughout the day in early March, indicating that global funds are returning to China's stock market. In addition, foreign giants such as Morgan Stanley and Goldman Sachs have recently reported a positive view of the entire Chinese stock market and have begun to return to the A-share market.
3. The impact of the national team's bailout funds: Since 2024, the total net inflow of "national teams" such as Central Huijin into the A-share market through ETFs may exceed 410 billion yuan, which is the first time in recent years that real money has been re-invested in the A-share market on a large scale after the national team has continuously reduced its holdings since 2020.
4. Foreign investors repricing Chinese assets: According to a new report released by the Institute of International Finance, March was the first time since June last year that China's stock and bond markets received net purchases from foreign funds at the same time, indicating a major shift in foreign attitudes towards Chinese assets.
5. Foreign investors are optimistic about the development prospects of leading new energy companies: Foreign institutions are optimistic about the development prospects of China's new energy leaders BYD and CATL, which is also an important reason for the rapid return of foreign capital.

The reasons for the net purchase of foreign investors in China's stock and bond markets in March 2024 are mainly due to the expectation of the Federal Reserve's interest rate cut and the acceleration of RMB internationalization, the trend of global funds returning to the Chinese stock market, the active intervention of the national team's rescue funds, the major change in foreign investors' attitudes towards Chinese assets, and the recognition of foreign investors who are optimistic about the development prospects of leading new energy companies.

What is the trend of foreign investment in China's bond market in recent years and its impact on China's economy?

In recent years, there has been a clear trend of foreign investors increasing their holdings in China's bond market, and this trend and its impact on China's economy can be analyzed from the following aspects:

1. Trend of increasing holdings: According to the data, foreign investors have increased their holdings of China's onshore bonds for many months, including more than 200 billion yuan of bonds at the beginning of 2024. In addition, since 2023, the cumulative net buying volume of foreign institutions has exceeded 1.3 trillion yuan. This continuous increase in holdings reflects the high recognition and confidence of foreign investors in China's bond market.
2. Reason analysis: There are various reasons why foreign investors continue to increase their holdings in China's bond market. First, the "safe haven" effect of RMB assets is becoming increasingly prominent, and global central banks and international investors are optimistic about China's bond market. Second, the narrowing of the inversion of the interest rate differential between China and the United States and the steady rise of the onshore yuan have provided favorable conditions for foreign investors to increase their holdings. In addition, the strengthening of the renminbi at the end of last year and the expected improvement in the recovery of the domestic economy have also boosted the interest of overseas investors in investing in renminbi assets.
3. Impact on China's economy:
4. Increased capital inflows: The continued increase in foreign capital holdings has directly increased capital inflows into China, helping to alleviate domestic liquidity pressures and support economic growth.
5. Increasing market confidence: The positive actions of foreign investors have strengthened the confidence of the international community in China's bond market, which is conducive to attracting more foreign capital to enter the Chinese market and further opening up and improving the domestic financial market.
6. Exchange rate stability: With the increase of foreign capital inflow, the RMB exchange rate can be stabilized to a certain extent and the impact of exchange rate fluctuations on the economy can be reduced.
7. Promoting financial reform: The continuous increase in foreign investment is also an affirmation of the effectiveness of China's financial reform, prompting China to accelerate the pace of opening up its financial markets and improve the transparency and efficiency of financial markets.

In recent years, foreign investors have increased their holdings in China's bond market, which not only shows that foreign investors are optimistic about China's economic fundamentals in the long term, but also has had a positive impact on China's economy, including increasing capital inflows, enhancing market confidence, stabilizing the exchange rate, and promoting financial reform.

How is the net buying behavior of Northbound funds different in 2023 compared to previous years, and what is the reason behind this change?

There are several significant differences in the net buying behavior of northbound funds in 2023 compared to previous years. First of all, although the annual net purchase amount of northbound funds in 2023 will be 43.704 billion yuan, which marks the 10th consecutive year of net buying, the total trading volume of northbound funds during the year has reached 25 trillion yuan, indicating that in some months, northbound funds have increased their positions particularly violently. Especially in January, northbound funds once violently increased their positions by more than 140 billion yuan, which far exceeded the net purchase amount in other months, and even reached 112.5 billion yuan in January.

In addition, in 2023, the four major industries will receive more than 10 billion yuan of northbound funds, namely automobiles, batteries, semiconductors, and optics and optoelectronics, which shows that northbound funds are more focused on industries with high growth and technological content when selecting investment targets.

The reasons behind it may include: first, the expectation of economic recovery, China's economic growth slowed down due to the repeated impact of the epidemic last year, but with the control of the epidemic and the gradual recovery of the economy, foreign investors' confidence in the A-share market has increased; second, the FTSE Russell index adjusted its position on March 15, bringing passive tracking funds to further increase the allocation of A-shares; third, the US dollar is basically in a sideways state of volatility against the renminbi, which is conducive to reducing exchange rate risks and attracting more foreign capital inflows.

The net buying behavior of northbound funds in 2023 is different from previous years in terms of scale and structure, mainly due to the impact of economic recovery expectations, global capital market adjustments, and exchange rate fluctuations.

Why does Timothy Moe, chief equity strategist at Goldman Sachs Asia Pacific, maintain an "overweight" rating on the A-share market, and what is the basis for his forecast?

Timothy Moe, chief equity strategist at Goldman Sachs Asia Pacific, maintains an "overweight" rating on the A-share market, mainly based on the following forecasts:

1. China's indices have outperformed market expectations this year. This has been mentioned in multiple evidences of the strong performance of China's stock market and the growth rate that exceeded investors' expectations.
2. A number of factors point to a positive opportunity for Chinese stocks in the fourth quarter. This shows that Timothy Moe believes that there will be more investment opportunities in the Chinese stock market in the coming period, especially in the fourth quarter.
3. Optimistic outlook on China's equity assets in the future. Moe believes that Chinese equities have a good chance to perform in the coming period, including Q4, due to a number of factors, and recommends that clients, including traditional and hedge funds, strategically overweight Chinese equities.

Timothy Moe's "overweight" rating on the A-share market is based on the performance of the China index that has exceeded market expectations this year, as well as the positive perception of opportunities in the Chinese stock market in the fourth quarter and beyond. These views reflect his positive expectations for the development of China's stock market at present and in the coming period.

In the current global economic environment, what is the trend of foreign capital flowing into the Chinese market, and what challenges may be faced in the future?

In the current global economic environment, the trend of foreign capital inflow into the Chinese market is characterized by continuous growth and activity. Zhu Hexin, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, said that since September last year, foreign investors have increased their net holdings of domestic bonds for four consecutive months, accumulating more than US$64 billion, and it is expected that the stability of cross-border capital flows will be further improved this year. In addition, experts from the US think tank pointed out that as China's economy leads the global economy out of the negative impact of the new crown epidemic, the business environment of foreign-funded enterprises in China continues to improve, and foreign multinational companies are increasing their investment in China. The Global Investment Trends Monitor report also shows that China has become the world's largest inflow of foreign investment.

Possible challenges for foreign capital inflows into the Chinese market in the future include:

1. Uncertainty in the global economic environment: While China's economy has shown strong resilience and growth potential, uncertainties in the global economic environment, such as the pivot in monetary policy in major advanced economies and the tightening of global liquidity, may have an impact on foreign capital inflows.
2. Intensified market competition: Competition will become more intense as more and more foreign capital enters the Chinese market. This is not only true for traditional industries, but may also extend to emerging technologies and service sectors.
3. Changes in the policy and regulatory environment: The Chinese government has been working hard to optimize the business environment and attract foreign investment. However, changes in the policy and regulatory environment, particularly restrictions or requirements for foreign enterprises, may act as an obstacle to foreign capital inflows.
4. RMB exchange rate fluctuations: While the trend of foreign capital inflows into the Chinese market is positive, RMB exchange rate fluctuations remain a potential risk factor. Exchange rate fluctuations may affect the costs and benefits of foreign capital, which in turn may affect its investment decisions.

Although the trend of foreign capital inflow into the Chinese market is positive, it may still face challenges from the global economic environment, market competition, changes in the policy and regulatory environment, and fluctuations in the RMB exchange rate.