Foreign investors show renewed interest in China equities, HSBC report says

Foreign investors and active funds increased their exposure to mainland Chinese equities in September, according to an HSBC report, marking a renewed interest in the world’s second-largest economy.

Asia-focused and global emerging market (GEM) funds boosted their holdings of Chinese stocks last month, with positioning nearing a five-year high, the bank said in a report on Monday. It represented the third straight month of net increases in such exposure for GEM funds.

“[Asia] funds notably increased exposure to mainland China, followed by South Korea and Singapore, while trimming holdings across all other markets,” HSBC analysts Prerna Garg and Herald van der Linde said. “The holdings in India and Indonesia are near the lowest levels in many years.”

The analysis – based on data from Morningstar, FTSE Russell and FactSet – also found that GEM funds’ overweight position in South Korea reached its highest level in over a decade, bolstered by strong liquidity and a recovery in tech exports.

Mainland China and South Korea accounted for most regional inflows, while exposure to Taiwan, India and most Asean markets declined, indicating a clear preference shift toward North Asia, the analysts said.

While inflows from foreign institutional investors eased in October, they remained net buyers, according to HSBC.

Overseas funds bought about US$3.4 billion worth of South Korean equities and returned to India after three months of outflows. However, they continued to be net sellers in mainland China, although the pace of outflows slowed from previous months.