The scale of China's stock ETFs has soared, and more overseas long-term funds are waiting for the opportunity to enter the market

Since late September, with the launch of a series of blockbuster policy "combination punches" in China, overseas funds have accelerated the influx of Chinese assets. According to statistics, a number of overseas listed Chinese stock ETFs continue to attract gold. Among them, the largest Chinese stock ETF listed in United States, China large-cap ETF - iShares (FXI), has exceeded $10 billion in assets.

After a period of unilateral gains, both A-shares and Hong Kong stocks showed a volatile trend. In the view of many foreign investors, the profit-taking of funds in the early stage may lead to a market correction, and the market action driven by the policy side still exists in the short term. Previously, the allocation of global actively managed funds to A-shares was mostly neutral or underweight, and in the future, with the continuous improvement of China's economic fundamentals, the flow of overseas long-term funds waiting on the OTC will accelerate into the Chinese market.

Global funds swept Chinese stock ETFs

Since September 24, China's stock ETFs have ushered in a large-scale sweep of global funds.

Taking China's large-cap ETF-iShares (FXI) as an example, Futu data shows that as of October 11, the fund's assets reached $10.861 billion, up 174.3% from $3.96 billion on August 30. The last time the fund reached $10 billion was in 2009.

As of October 11, the asset size of China Overseas Internet ETF (KWEB) under United States Jinrui Fund was US$7.651 billion, a significant increase of 83.17% from US$4.177 billion on August 30; The size of the Triple Long FTSE China ETF-Direxion was US$2.603 billion, an increase of 223% from US$806 million on August 30; The CSI 300 China A-share ETF – Deutsche Bank Harvest was $3.377 billion, up 200% from $1.12 billion on August 30.

CICC said in its research report that from October 3 to October 9, A-shares received an inflow of US$200 million from actively managed foreign capital and US$4.10 billion from passively managed funds. In addition, from October 8 to October 10, the average daily turnover of northbound funds was 401.6 billion yuan, a significant increase from 356.9 billion yuan on September 30.

A person from a foreign-funded institution in Shanghai said that before September 24, the allocation of global actively managed funds to A-shares was mostly neutral or underweight, but with the rapid rise of China's stock market, foreign investors began to increase their allocation to Chinese stocks.

Zhou Wenqun, deputy director of the equity department of Fidelity Fund Management (China) Co., Ltd., said that China's economic fundamentals continue to improve, and the valuation of Chinese assets remains attractive, and now is a good time for global investors to refocus on the Chinese market.

The A-share market still has upward momentum

After a period of strong rebound, both A-shares and Hong Kong stocks showed a volatile trend. In this regard, a number of foreign-funded institutions believe that the profit-taking funds in the early stage may lead to a market correction, and with the significant increase in the attractiveness of A-shares and the continuous inflow of foreign capital, A-shares still have upward momentum.

Meng Lei, China equity strategist at UBS Securities, said: "It will take some time for the larger-than-expected steady growth policy since September 24 to be transmitted to the real economy and corporate earnings. With the gradual improvement of economic fundamentals, corporate earnings will take advantage of the momentum, and the upside of the A-share market will be further opened. ”

Fidelity International believes that the attractiveness of A-shares will continue. First, valuations in China remain historically low, and they are also below most major overseas markets. Moreover, a large number of international investors from Asia, the Americas, Europe and other places underweight Chinese assets and need to rebalance, which may help the A-share market continue to rebound. Second, the resilience of China's economy should not be underestimated, and China is already a global leader in many fields such as green technology, digital economy, and high-end manufacturing. Third, the Chinese government's determination to stabilize growth is very strong, and the strategic path is clear.

"For now, overseas investors may be waiting for further improvement in economic data and clearer direction of the new policy to enter the market. We are more bullish on consumption-related sectors, including consumer, e-commerce and internet, as these companies have the potential to deliver earnings surprises. J.P. Morgan Asset Management Asia Pacific Chief Market Strategist Xu Changtai said.

In the view of Manulife Fund, a series of policy "combination punches" will benefit many industries, especially the pro-cyclical sectors that have been sharply adjusted in the early stage, such as finance, real estate chain, consumption, some technology sectors, Hong Kong stocks Hang Seng Technology, some commodities and other varieties. With the successive introduction of stable growth policies, the rising market is expected to continue, and the valuation repair of related varieties is worth looking forward to.

The process of overseas funds increasing their holdings of Chinese assets is expected to accelerate

A number of foreign-funded institutions said that more overseas long-term funds did not participate in the previous "sharp rise" market, and they were observing economic data and the improvement of corporate earnings, waiting for the best time to enter the market.

Meng Lei said that from the perspective of liquidity, a large number of over-the-counter funds (including new individual investors, newly issued subscribed public funds, foreign capital that was previously underweighted in the Chinese stock market, and medium and long-term funds that have not yet entered the market) are waiting to enter the market. If there is a pullback in the A-share market, the over-the-counter funds that missed the previous market rebound may take the opportunity to increase their positions.

A foreign-funded institution in Shanghai believes that the short-term inflow of funds into the Chinese market is mainly transactional funds and passively managed funds, and if China's economic fundamentals continue to improve, actively managed funds and allocation funds are also expected to flow in.

"Transactional and passively managed foreign capital tend to inflow first in the early stages of the rebound because they are more flexible, while long-term actively managed foreign capital usually needs to observe an improvement in fundamentals before it can see a big inflow. After the recent introduction of a series of policy 'combinations' in China, more and more overseas institutions are paying more attention to and evaluating Chinese assets, and the market outlook may adopt a gradual rhythm, from underweight to neutral, and then further upgrade to overweight after observing the improvement of economic data and corporate earnings. The person said.

Liu Jia, head of Asia investment strategy at Deutsche Bank International Private Banking, believes that if the current relatively optimistic market conditions can be sustained, the policy "combination punch" can bring about a steady recovery of economic fundamentals, and the relatively low valuation of Chinese stocks, more and more overseas funds will buy Chinese assets in the future.

Liu Jia further said that due to the strong performance of US stocks, especially United States technology stocks in the past two years, global funds have continued to overweight US stocks, and the valuation of US stocks is significantly higher than that of other stock markets. "After China launched a series of policy 'combinations', we are seeing more overseas funds considering whether to increase their holdings of Chinese equities again. We believe that if China's economic data continues to improve, the process of overseas funds increasing their holdings of Chinese assets is expected to accelerate. Liu Jia said.