- 2024-06-25
- News
Foreign Capital Continues to Boost Chinese Assets
As a suite of incremental economic policies take effect, an increasing number of foreign institutions have indicated that they will increase their investment in China's capital market, committing more significantly to the Chinese market. Experts say that, whether viewed from the current macroeconomic situation or from the valuation level of A-shares, the Chinese market offers a superior choice for long-term capital allocation by foreign capital and has become an important market that cannot be ignored.
The Chinese market is highly attractive
Recently, international investors have cast a vote of confidence in the Chinese market with their investments. A recent global ETF (Exchange-Traded Fund) capital flow report released by E Fund Hong Kong shows that in October, the net inflow of funds into Chinese ETFs listed overseas reached 111.5 billion yuan, with stock ETFs accounting for 109 billion yuan, indicating a significant increase in inflow scale.
This trust is based on the positive momentum of China's economy. Major economic data released by the National Bureau of Statistics for October shows significant improvements in consumption, services, and imports and exports, with stable employment and prices, and a continuous increase in positive factors in economic operations, effectively boosting market confidence and vitality. As of the close on November 19, A-shares have seen transaction volumes exceeding one trillion yuan for 35 consecutive trading days. Wu Dan, a researcher at the Bank of China's Research Institute, believes that as the fundamentals of China's economy continue to improve, overseas funds are expected to flow into the Chinese market at an accelerated pace. In contrast, the risks of investing in overseas financial assets are increasing, especially with the increased uncertainty in the Federal Reserve's interest rate path, leading to greater volatility risks in the U.S. financial market. The prices of global financial assets such as gold and crude oil are fluctuating sharply, making the risks and unpredictability of investing in related benchmarks relatively high.
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Zhu Chaoping, a senior global market strategist at J.P. Morgan Asset Management, believes that the incremental policies since the end of September have exceeded expectations, quickly boosting investor confidence and improving expectations for future corporate earnings and market liquidity. As policies continue to take effect, they will drive market recovery from two dimensions: domestic production recovery and consumer demand.
Shen Bing, Director of the Institutional Department of the China Securities Regulatory Commission (CSRC), believes that the "strong magnetic force" of China's capital market on international investors mainly comes from three aspects: First, there is a long-term optimistic view of the stable development of the economy. This year, a series of key reform and development tasks have been accelerated, and a suite of macro policies have been implemented, making the foundation for the continuous recovery and improvement of China's economy more solid, and the fundamental data is also showing marginal improvements. Second, there is a long-term optimistic view of the development prospects of China's capital market. The status and influence of China's capital market in the world are gradually increasing. In terms of valuation levels, compared with comparable economies or emerging economies, it is still at a relatively low historical level, providing a better choice for long-term allocation by foreign capital. Third, there is a long-term optimistic view of China's investment business environment. The CSRC is unswervingly promoting all-round opening up of the market, institutions, and products, continuously optimizing a stable, transparent, and predictable investment environment, which makes China's capital market exude a strong appeal.
High-level opening up is accelerating
The attractiveness of the Chinese market also benefits from the accelerated promotion of high-level institutional opening up. In recent years, facing a complex and severe internal and external environment, China has always adhered to the basic national policy of opening up to the outside world, insisting on promoting reform and development through opening up, especially in the field of capital markets, efforts have been made to create a transparent, stable, and predictable institutional environment.
In terms of market opening, the mechanism of the Shanghai-Shenzhen-Hong Kong Stock Connect has been improved, the scope of trading targets has been expanded, the trading calendar has been optimized, the access conditions for qualified foreign investors have been continuously relaxed, the investment scope has been expanded, and the convenience of foreign capital participating in A-share investment has been increased. Foreign capital continues to flow into the A-share market through QFII and the Shanghai-Shenzhen Stock Connect. As of the end of October, the number of stocks included in the Shanghai-Shenzhen Stock Connect has reached 2,788, accounting for more than 90% of the total market value of the A-share market.
In terms of institutional opening, the convenience of foreign institutions operating in China has been continuously improved. The foreign shareholding ratio restrictions for securities, fund, and futures companies have been lifted, and foreign institutions have achieved national treatment in business scope and regulatory requirements. Data shows that as of the end of October, 25 foreign-controlled or wholly-owned securities, fund, and futures companies such as Fidelity have been approved one after another, 5 foreign banks such as Citibank have obtained fund custody qualifications in China, and 35 wholly foreign-owned or joint venture private securities investment fund managers such as Bridgewater have been registered with the China Securities Investment Fund Association.
In terms of product opening, efforts have been made to include A-shares in international indexes such as MSCI, FTSE Russell, and S&P Dow Jones, with the inclusion ratio continuously increasing; China-Japan, China-Singapore, Shenzhen-Hong Kong, and Shanghai-Hong Kong ETF mutual connections have been successively launched and operated, with a total of 24 ETF mutual connection products launched; the opening of specific varieties of futures and options has continued to expand; the first foreign bank in China has achieved participation in the domestic Treasury futures market; the supply of offshore A-share derivative tools has continued to enrich, supporting Hong Kong in launching the first A-share index futures.
On November 1st, the investment threshold was lowered from 5 aspects, including allowing foreign natural persons to implement strategic investments and relaxing the asset requirements for foreign investors, further broadening the channels for foreign investment in the securities market, leveraging the potential of strategic investment channels to attract capital, and encouraging foreign capital to carry out long-term and value investments. Tian Lihui, a professor of finance at Nankai University, said that encouraging foreign capital to engage in long-term and value investments helps promote financial product innovation and systemic mechanism reform in China's capital market, promoting the diversified development and further maturation of the market. At the same time, by expanding the scope of investment entities, enriching the ways of foreign investment, and supporting cross-border stock swaps, it will promote the efficient flow of capital, bring more financial support to Chinese listed companies, introduce advanced technology, talent, and management experience, stimulate innovation vitality, and promote the high-quality development of the real economy.
The effectiveness of reforms continues to emerge
This November, the Shanghai-Hong Kong stock market trading connectivity mechanism has ushered in its 10th anniversary. Since the launch of the Shanghai-Hong Kong Stock Connect, the mainland and Hong Kong have jointly created a new model of cross-border securities investment and explored a new path for high-level financial opening up.
Since the launch of the Shanghai-Hong Kong Stock Connect, the cumulative transaction amount of foreign capital through the Shanghai Stock Connect has reached 7 trillion yuan, and the average daily transaction amount of the Shanghai Stock Connect has increased significantly from 4.7 billion yuan in the first month of its launch in 2014 to the current 128.3 billion yuan.
"At present, the Shanghai-Shenzhen-Hong Kong Stock Connect has become the main channel for international investors to trade and hold A-shares, with nearly 77% of foreign capital holding A-shares through this channel," said Chen Yiting, Chief Executive Officer of Hong Kong Exchanges and Clearing. After multiple optimizations and upgrades, the interconnectivity trading mechanism has become more convenient and has been widely recognized by domestic and foreign investors. In October, the transaction volumes of the northbound and southbound trading of the Shanghai-Shenzhen-Hong Kong Stock Connect set new highs of 280 billion Hong Kong dollars and 510 billion yuan, respectively.
The interconnectivity trading mechanism is a microcosm of China's continued deepening of capital market opening up. In recent years, high-level institutional opening up measures in China's capital market have gradually taken effect, creating a better foundation for foreign capital to conveniently enter the Chinese market. By guiding more high-quality foreign capital to invest in listed companies, it can not only promote the expansion and improvement of the total amount and quality of foreign capital utilization but also help promote the upgrading of China's industries and the healthy and stable development of the capital market.
The Vice Chairman of the China Securities Regulatory Commission said that it will adhere to marketization, legalization, and internationalization, and strive to create a good situation for foreign capital that is "willing to come, can stay, and develop well." Next, the CSRC will implement capital market reform and opening up measures, enhance the investment value of A-shares, and create long-term returns for investors.
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