“Continued decline does make investors pessimistic, but market risks are often released with the decline, that is, ‘opportunities fall out’.” In the face of the current sharp fluctuations in the A-share market, said a fund manager of a foreign-funded institution in Shanghai.
From the data, the allocation disk representing the “long money” of foreign capital has recently seen a net outflow for many consecutive days. A number of foreign-funded institutions said that for the purpose of hedging, they have recently reduced their holdings of global equity assets, not just selling a shares. However, many foreign fund managers said that the current A-share market has become attractive and can be more optimistic in the future.
why does foreign capital “grow money” flow out
With the fluctuation of A-share market, the northward capital has shown a net outflow trend recently. According to China Industrial Securities Co.Ltd(601377) statistics, from March 7 to March 11, the net outflow of funds from the North exceeded 36 billion yuan, and the weekly net outflow scale reached a new high in recent two years. In addition, choice data showed that the total net outflow of northbound funds exceeded 30 billion yuan in the first two trading days of this week.
China Industrial Securities Co.Ltd(601377) said in the research report that unlike the substantial outflow of trading orders from January to February but the continuous inflow of allocation orders, the allocation orders and trading orders of foreign capital have turned into net outflow recently, and the allocation orders representing the “long money” of foreign capital have seen net outflow for many consecutive days.
“The recent northward capital outflow, on the one hand, is due to factors such as the increased volatility of overseas markets and the continued hawkish of the Federal Reserve caused by stagflation risk; on the other hand, geopolitical risks may become the fundamental reason for the outflow of foreign capital and overseas’ long money ‘.” China Industrial Securities Co.Ltd(601377) said in the research report.
In an interview, a number of foreign-funded institutions said that the recent net outflow of funds from the north is indeed for the purpose of risk avoidance, but foreign investors have reduced their positions in major overseas markets, not just selling a shares.
“The recent continuous outflow of foreign capital has indeed been affected by the reduction of risk asset allocation by global institutional investors. In particular, food and beverage, household appliances, banks and other sectors with large foreign holdings have been greatly affected by the outflow of foreign capital, and the share price has been significantly adjusted.” Liao Xinyu, fund manager of Huili fund, said.
Liu Hui, senior fund manager of Jingshun investment, said that the global market has fallen sharply recently. Overseas funds have reduced their positions in major markets, and it is normal to reduce their positions in a shares.
However, Citic Securities Company Limited(600030) found that while the net outflow of northbound funds is still continuing, the net inflow of northbound funds into the heavy position industry – power equipment and new energy indicates that the active management funds behind it may also be adjusting positions at the same time.
RMB assets remain the global “safe haven”
In fact, since the outbreak of the conflict between the US dollar and the US dollar, the global exchange rate has kept rising. In the view of many foreign investors, for overseas investors, RMB assets are still a “safe haven” for global funds.
Liu Hui said that the recent strong performance of the RMB, in addition to China’s strong exports and trade surplus growth, the substantial growth of FDI (International Direct Investment) is also one of the main reasons. China remains one of the countries with the strongest attraction for foreign investment.
“Recently, affected by the inflation risk caused by the conflict between Russia and Ukraine and the rise of oil prices, the global financial market has been turbulent, and many investment institutions have reduced the allocation proportion of equity assets, resulting in the decline of global stock markets in varying degrees. From our point of view, RMB assets have a certain risk aversion attribute.” Liao Xinyu said.
In this regard, Liao Xinyu gave two reasons: first, although China’s economic growth is facing downward pressure, the growth rate is still among the fastest among the major economies; Second, under the situation of tight global supply caused by rising oil prices, China is expected to show its position as a global manufacturing center again, and its exports are expected to maintain rapid growth.
A-Shares can be relatively optimistic in the future
Despite the reduction of A-Shares for the purpose of hedging in the short term, almost all foreign institutions have reached a consensus on the long-term investment value of a shares.
“The share prices of many high-quality companies have retreated by more than 30% from their recent highs. Without deteriorating fundamentals, the valuation has become attractive. For long-term investors, it can be more optimistic now than before the crash.” Zhou Ping, director of China quantitative investment of lubemaker, said.
Bian CE, director of China investment business of Wellington investment management, said that geographical conflicts have led to continuous turbulence in the global market. In this context, the low correlation between China’s onshore assets and the global market can help overseas investors effectively diversify risks and increase excess returns. Under the average value of reasonable pricing, from almost all measurement standards, the valuation of A-share market is lower than that of overseas developed markets.
In Liu Hui’s view, after the sharp correction, the cost performance of some growth industries has been significantly improved. Under the background of relatively friendly policies, the short-term sharp correction of the market brings better layout opportunities for investors. “We believe that many stocks in the power equipment industry, electric vehicle industry chain and pharmaceutical industry have good investment value. In the long run, the trend of A-share market will depend on its own fundamentals.”
Liao Xinyu said that at present, the assets with the most investment value are companies with strong competitiveness in various industries. These excellent companies are strong in capital strength, management ability, cost control and other aspects. They are more likely to resist the current risks and have the ability to cross the cycle. “There are several ideas for looking for industries in line with China’s development trend: first, new energy and new materials in line with the global carbon reduction trend; second, consumer electronics benefiting from a new round of product innovation; third, consumption upgrading driven by the improvement of residents’ living standards.”
