Global Capital Sweeps Up Chinese Assets, China’s Attractiveness to Foreign Investors Continues to Grow

Recently, there has been a significant change in global capital flows, with Chinese assets becoming the focus of international investors. A global fund flow report released by Goldman Sachs Group shows that in the four weeks ending October 30, 2024, a total of $63.628 billion of global funds netted into the equity market, with the A-share market leading the way, attracting $24.385 billion (approximately RMB 170 billion) in net inflows, an amount second only to the $37.228 billion of net inflows into the U.S. equity market. This figure not only demonstrates the attractiveness of Chinese assets globally, but also reflects investors’ recognition of China’s economic stability and growth potential.

A number of foreign institutions have been bullish on Chinese assets and have increased their allocations to Chinese assets in various ways. UBS Global Financial Markets head of China Fang Dongming said, now is an all-out effort to grasp the economy of the overall policy orientation, focus on China, add positions in China is a clear direction. Since September 24, the central bank and the Securities and Futures Commission have released a series of heavyweight policies, kicking off the current round of economic stimulus. These policies have not only reversed investors’ expectations of future economic growth, but also boosted the confidence of domestic and foreign investors.

From an industry perspective, foreign capital inflows are mainly concentrated in the financial, consumer, new energy and technology industries, which are the beneficiary direction of economic transformation, with growth potential and certain performance support. For example, innovative enterprises in the field of new energy are attracting a lot of attention from foreign investors, and these enterprises have shown strong development momentum driven by both policy support and market demand.

In addition to industry factors, the valuation advantage of Chinese assets is also one of the important factors attracting foreign investment. After the adjustment in the past few years, most of the Chinese assets have been seriously undervalued, valuation is at historical lows. In contrast, the valuation of the European, American and Japanese stock markets is at a historically high level, and it has become a major trend for global funds to flow out of the European, American and Japanese stock markets and enter the A-share and Hong Kong stock markets for layout. This valuation depression effect makes Chinese assets more attractive in the global market.

In addition, the Federal Reserve has entered a rate-cutting cycle, the U.S. dollar has retreated, and the RMB is expected to appreciate, which has also increased the willingness of global capital to invest in RMB assets. During the period of RMB appreciation, it tends to attract more foreign capital inflows. The Fed’s interest rate cut policy not only brings valuation repair opportunities for Chinese assets, but also provides global investors with more reasons to lay out the Chinese market.

Hong Kong serves as a bridge for the two-way opening of China’s capital market, and the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have become increasingly popular among domestic and foreign investors. Data shows that as of the end of October 2024, the total market capitalization of the Hong Kong stock market reached HK$35.2 trillion, up 14% from the same period last year. Sharing the opportunities of China’s economic development through the Hong Kong stock market is also one of the favored paths for international investors. HKEx Group CEO Yiting Chen said that it will continue to expand and optimize the connectivity mechanism, promote a number of market system reforms, and continue to innovate products and services to attract more global incremental capital.

In the midst of global economic uncertainty, China’s role as a safe haven is growing. Investors seek to add China elements to their diversified portfolios to balance risks. Bank of America’s latest monthly survey of global fund managers shows that “bullish on China” ranked among the top 3 hottest trades in the October survey, with a ratio of 14%. In addition, a net 48% of global fund managers expect China’s economy to strengthen over the next 12 months.

In summary, the attractiveness of China’s assets continues to grow globally, with foreign institutions looking favorably on and increasing their allocations to Chinese assets. This trend not only reflects the high-quality development of China’s economy and the continuous opening up of its financial markets, but also the positive attitude and confidence of global investors in the Chinese market. In the future, as China’s economic fundamentals continue to improve and the policy environment continues to be optimized, it is believed that more capital will flow into the Chinese market, bringing opportunities for the valuation of Chinese assets to rebound.