As the Chinese government introduces a new round of stimulus plans, the Chinese stock market has experienced a strong rebound, which could trigger a significant shift in global investment portfolios, attracting investors to scramble for Chinese stocks. Currently, South Korea, Indonesia, Malaysia, and Thailand's stock markets are experiencing net outflows, while the Japanese stock market has seen over $20 billion in capital withdrawn in the first three weeks of September.
The rebound in the Chinese stock market has not only attracted capital inflows but also triggered a reassessment of investment portfolios globally. Market observers have noted that with the introduction of China's latest round of stimulus plans, the trend of capital withdrawal from the Chinese stock market is reversing. Last week, South Korea, Indonesia, Malaysia, and Thailand's stock markets saw net outflows, while data from BNP Paribas showed that over $20 billion was withdrawn from the Japanese stock market in the first three weeks of September.
This emerging rotation may signal the end of the brilliant performance of Asian (excluding China) stock markets. Previously, fund managers sought better returns outside of the world's second-largest stock market, driving the rise of Asian stocks. For most of this year, Taiwan's stock market has risen due to the surge in chip manufacturers' stock prices, while India's stock market has risen due to accelerated economic growth. Southeast Asian stock markets have risen due to U.S. interest rate cuts.
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Eric Yee, Senior Portfolio Manager at Singapore's Atlantis Investment Management, said, "We are reducing long positions across Asia to fund the purchase of Chinese stocks. Everyone is doing this. It's a good performance of policy-driven recovery from the trough. You wouldn't want to miss such an opportunity."
With the government announcing a series of measures to stimulate economic growth, the MSCI China Index has risen by more than 30% from its recent low. Both China and Hong Kong's trading volumes set a new historical high on Monday. Attractive valuations have also helped. Despite the recent rebound, the forward price-to-earnings ratio of the MSCI China Index is still 10.8 times, lower than its five-year average of 11.7 times.
According to EPFR data as of the end of August, the global mutual fund allocation to Chinese stocks is generally 5%, the lowest level in a decade, highlighting the room for funds to increase their holdings. BNP Paribas strategist Jason Lui and others wrote in a report on Wednesday, "We believe that some foreign investors are reducing their holdings in Japan and reallocating funds back to China."
It should be noted that this shift is still in its early stages, and BNP Paribas pointed out that foreign funds have not yet significantly withdrawn from emerging market products outside of India and China.
Mohit Mirpuri, fund manager at Singapore's SGMC Capital Pte, said that although it is still too early, "there may be investors transferring assets from Japan or India to China." "By the end of 2024, China will become the most outstanding performing country. The current momentum is hard to ignore."
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