Foreign investors sold a record $12 billion in Chinese stocks in August, as Beijing's piecemeal support measures failed to alleviate fears about slowing growth in the world's second-largest economy and a deteriorating housing crisis. The unprecedented outflows come as data released on Thursday showed China's manufacturing sector contracted for the fifth month in a row, despite …
Foreign investors sold a record $12 billion in Chinese stocks in August, as Beijing’s piecemeal support measures failed to alleviate fears about slowing growth in the world’s second-largest economy and a deteriorating housing crisis.
The unprecedented outflows come as data released on Thursday showed China’s manufacturing sector contracted for the fifth month in a row, despite leaders’ pledges in late July to provide more substantial support measures for the vital property sector, which accounts for roughly a quarter of annual economic activity.
Simmering US-China tensions have also dampened western investors’ desire for Chinese assets, with US Commerce Secretary Gina Raimondo warning last week during a four-day visit to the nation that American corporations were beginning to perceive China as “uninventable.”
According to Financial Times calculations based on exchange data, offshore traders sold about Rmb90 billion ($12.4 billion) worth of Shanghai and Shenzhen-listed shares in August, the biggest in any month since the program’s inception in late 2014.
According to asset managers and analysts, the spike in sales mirrored global investors’ disappointment, as their focus this year changed from hopes for a broad stimulus to a more targeted bailout for property developers. However, Chinese policymakers have been hesitant to mount such a rescue operation.
“Investors are concerned about GDP and whether policymakers will be able to meet the 5% target,” said Stephen Innes, managing partner at SPI Asset Management. “That is directly attributable to the property market because the impact on GDP could be one percentage point or higher.”
Innes noted that investors were concerned about “high-level political risk” as the outlook for US-China ties remained bleak, despite Raimondo’s “positive” visit.
Concerns about the country’s real estate market have grown this month as private Chinese developer Country Garden, once regarded as one of the least likely to default, missed payments on international bonds and attempted to delay renminbi repayment obligations due next week.
Meanwhile, shares in China Evergrande, the developer whose defaults on dollar notes triggered the sector’s liquidity crisis two years ago, started trading in Hong Kong this week for the first time in 17 months and instantly dropped nearly 90%.
“The word’stimulus’ has been misused too many times, and now nobody expects a big bang on the fiscal front anymore,” said Alicia Garca-Herrero, Natixis’ chief Asia-Pacific economist. “Nowadays, investors’ clients are focused on real estate sector policy — that’s the new mantra.”
She stated that a number of property policy changes had occurred in the previous month, including the relaxation of lending criteria for first-time buyers in the megacities of Guangzhou and Shenzhen. However, these were “tiny bits, not the big bang [that would result in] equity inflows from foreign investors.”
The economic slowdown has weighed hard on broader valuations of Chinese stocks, sending the benchmark CSI 300 index down 8% in dollar terms year to far, despite huge advances in other major markets around the world.
Attempts to prop up shares through trading fee cuts and other measures, which previously generated significant gains, have also failed to provide a long-term boost to market morale.
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