Northbound funds bought 92.7 billion yuan, Goldman Sachs sang more Chinese assets, which type of stock has the most room to rise?

China Times

2024-05-24 15:48Posted on the official account of Beijing China Times

Global funds are increasing their allocation to Chinese assets. Goldman Sachs said in its latest report that overseas hedge funds have increased their holdings of Chinese stocks for the fourth consecutive week. According to Wind data, as of May 23, the net purchase amount of northbound funds during the year was as high as 92.7 billion yuan, far exceeding that of last year.

Liu Chunsheng, an associate professor at the Central University of Finance and Economics, said in an interview with the China Times that the phenomenon of foreign capital returning to Chinese assets reflects the reversal of international investors' sentiment towards China's stock market, the gradual recovery of confidence, and the long-term optimism about China's capital market. The continuous inflow of foreign capital can not only bring incremental funds to China's stock market and improve market liquidity, but also help stabilize market sentiment and promote the healthy development of the capital market.

Foreign capital continues to run into the market

Wind data shows that the return of northbound funds, known as "smart money", began in February this year, and as of May 23, the net purchase amount of northbound funds during the year increased to 92.723 billion yuan, far exceeding the annual net purchase amount in 2022 and 2023, betting on the A-share market with "real money". Among them, on April 26 alone, northbound funds bought 22.449 billion yuan on a large scale, setting the highest single-day record since the opening of the cross-border connect.

At the same time, the recently disclosed 13F report also shows that many institutions increased their positions in Chinese concept stocks in the first quarter of this year, including Temasek, BlackRock, Goldman Sachs and other asset management giants. All signs show that the enthusiasm of global funds for the allocation of Chinese assets is accelerating.

"Since the end of October last year, we have been fully bullish on Chinese equities at the strategic level, and have increased our equity allocation to 100% in the simulated position." Liu Mingdi, chief Asia and China equity strategist at JPMorgan Chase, said frankly that with the market rising in April and May this year, the underweight of foreign investors to Chinese stocks has also narrowed, but there is still room for improvement.

As foreign investors increase their allocation to Chinese stocks, A-shares, Hong Kong stocks and Chinese concept stocks have collectively staged a wave of "big counteroffensive". Since the low point hit on January 22, as of May 20, the Shanghai Composite Index has risen by 11.96%, the Hang Seng Index has risen by 28.27%, and the MSCI China Index has soared by more than 31%, leading the world's major stock markets. However, from May 21 to 23, Chinese assets fell into a state of correction for three consecutive days, and the rally seemed to come to an end.

Chinese assets are becoming more attractive

What is the reason behind the accelerated inflow of foreign capital into Chinese assets? In the view of many industry insiders, after the adjustment of the past few years, the valuation level of China's stock market has returned to a low level, and this year, with the improvement of China's economic fundamentals, coupled with the rise of A-shares, Hong Kong stocks and Chinese concept stocks, the flow of global funds to Chinese assets has continued to increase.

Liu Chunsheng believes that there are three main reasons why foreign capital continues to increase its holdings in Chinese assets: First, China's economic growth is resilient, which is a key factor in attracting foreign investment. China's GDP growth rate was 5.3% in the first quarter, exceeding market expectations, and the positive trend is expected to continue in the second quarter, further supporting stock valuations and boosting capital market confidence. Secondly, the overall valuation of A-shares is in a global depression, which is also an important factor in attracting foreign investment. At present, the P/E ratios of the Shanghai Composite Index and the CSI 300 are much lower than the P/E ratios of major indices in the United States, Japan, France, the United Kingdom and other markets. In addition, with the increase of stable growth policies and the deepening of capital market reform, market risk appetite is expected to increase.

Talking about risks, Liu Chunsheng said: "From the perspective of the external environment, although the Federal Reserve has basically announced the end of the current round of interest rate hike cycle, the interest rate cut mode has not yet begun. In addition, the uncertainty caused by the US election year, the escalation of international geopolitical risks, and the turmoil of the global economy will stimulate the flight of foreign capital, which will have an adverse impact on Hong Kong stocks and Chinese concept stocks. ”

Zhang Junxiao, head of the total cycle group of the research department of Penghua Fund, said that on the whole, the rise of Hong Kong stocks in this round is the result of the resonance of fundamentals and funds, and foreign capital is more involved in the market. From the perspective of transaction structure, this round of funds is concentrated in Hong Kong Internet giants, followed by financial real estate.

In the short term, these sectors are highly correlated with the domestic economic prosperity, so to a certain extent, they also contain the improvement of macro and policy expectations; In the long run, some typical Internet platforms, after passing the period of rapid growth, have shown signs of increasing the scale of dividends and repurchases, and the value attributes have gradually become prominent.

"Up to 35% return over the next six months"

At the current point in time, whether this round of rising market can continue and whether foreign investors can continue to bet on Chinese assets has become the focus of attention of many investors. Looking ahead, many institutions believe that the overall valuation of the current A-shares, Hong Kong stocks and other markets is not high, with good investment attractiveness, and the future repair market is still expected to continue.

Goldman Sachs pointed out in the latest report that from historical data, China's stock market still has a 60% probability that it can continue to rise after rising more than 20% and entering a technical bull market, with an average potential maximum return of 35% in the next six months.

For the optimistic direction of the future, Bosera Fund told the "China Times" reporter that in terms of A-shares, the real estate policy has been issued on multiple fronts to support the real estate chain and improve the industrial dilemma, enhance market risk appetite, and further wait for the verification of volume and price data.

Falling to the structure, the first is the diffusion of the market in the real estate chain. However, for real estate stocks, the policy catalytic density will decline in the future, the policy effect has not yet appeared, and the upward resistance of stock prices is likely to increase. Second, the macro scenario still does not support a sharp shift to pro-cyclical sectors, and adhere to the "dumbbell" strategy, that is, one is resources, optimistic about the medium-term resource bull market, and the other is value and technology, and the short-term recovery trend is gamed.

In terms of Hong Kong stocks, China Asset Management told the "China Times" reporter that this round of rise in Hong Kong stocks is mainly due to its global valuation depression, which is catalyzed by the bottoming out of macro expectations and the improvement of Hong Kong stock earnings. Since April, the sectors with the largest gains have come from Hong Kong stocks with high dividends and Hang Seng Technology, which is dominated by Hong Kong stocks and the Internet, may have basically been repaired; Hong Kong stocks with high dividends may still have room to rise, their valuations are still at the lowest level in the world and the dividend yield is at a high level in the world.

Hu Di, director of the China index and quantitative investment department of J.P. Morgan Asset Management, believes that after the rapid rise in April, Hong Kong stocks may have certain divergences and shocks. However, with the improvement of domestic economic fundamentals, the monetary policy of advanced economies or the shift to accommodative policies, as well as the low valuation of Hong Kong stocks themselves and the fundamentals of improved earnings, Hong Kong stocks may have room for further improvement.

Editor-in-charge: Ma Xiaochao Editor-in-chief: Xia Shencha

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