International investors are not willing to get Chinese stocks. On the contrary, they are putting more money into Chinese stocks, even as local investors remained cautious on the mainland markets.
In the first month of the year, mainland Chinese stock funds saw net inflows of $16.6 billion. Importantly, that followed nearly $11 billion in net inflows in December.
Furthermore, the divergent interest comes as global investment firms turned increasingly on mainland Chinese stocks in the last several months.
Analysts are betting, in part, that China wants to ensure growth in a year the ruling Chinese Communists Party is set to choose its next leaders at a national congress in the fall of 2022. Unsurprisingly, President Xi Jinping is expected to retain his post.
Chinese stocks and authorities
Moreover, Goldman Sachs and Bernstein recommended buying Chinese stocks.
It is worth mentioning that investors are willing to invest money into Chinese stocks in spite of challenges. In the last 18 months, China cracked down on alleged monopolistic practices by Chinese internet companies and property developers’ high reliance on debt, among other issues.
Meanwhile, global emerging markets funds turned to India.
The mainland Chinese stock market is the second largest in the world by volume. Still, it differs significantly from that of the U.S, the world’s largest.
In the case of the Chinese stock market, speculative retail investors rather than institutions dominate the mainland market.
Nevertheless, there have been signs of progress. In 2018, index giant MSCI decided to add some China A-shares to the benchmark MSCI Emerging Markets Index. MSCI’s move forced international funds tracking the index to buy more A-shares. However, retail investors still dominate the mainland market.
China wants to attract international investment firms. The financial industry is one of the few areas in which China relaxed ownership restrictions in the last couple of years.
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