Foreign investors bypass China to drive up Asian stocks

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Foreign purchases in Asian emerging equity markets outside China exceeded flows into the region’s biggest economy for the first time in six years, as investor optimism about Chinese growth waned.

According to data compiled by Goldman Sachs, “ex-China” net foreign inflows into Asia’s emerging markets over the past 12 months totaled more than $41 billion, driven by nearly $33 billion in mainland Chinese equities through Hong Kong’s Stock Connect trading scheme. was more than the net flow of

The equivalent figures for the last 12 months were net outflows of $76.6 billion from emerging markets and net inflows of $42.8 billion into China.

The shift reflects the gloomy reality of China’s return to harsher COVID-19 restrictions, and highlights how economies elsewhere in the region are benefiting from changes in supply chains and strong US semiconductor demand.

“When you look at the region as a whole, you want to lean more towards markets that are more sensitive to US developments,” said Sunil Kaul, Asia-Pacific equity strategist at Goldman Sachs. He compared the sluggish recovery in China with strong growth elsewhere in the region. And hopes are growing that the US could avoid recession this year.

Deteriorating investor sentiment toward China was also reflected in Bank of America’s latest Asia Fund Managers survey, which found that a slight majority of nearly 260 respondents — those with more than $650 billion in assets under management — have cut their investments in China. less weight.

At the same time, however, 86 percent of fund managers surveyed by BofA expect Asia-Pacific markets outside Japan to rise over the next 12 months, partly due to “continued sentiment for regional equities (ex-China).” due to evaluation”. China’s slow growth and rising geopolitical risks have also increased demand for investment products outside China.

Manishi Raychaudhuri, Asia-Pacific head of equity research at BNP Paribas, said investors would remain “fence fence” on China until China’s growth outlook improves. He described the two key themes for Asia this year as “Buy India” and “Buy AI-powered technology”.

The latter topic has driven $10 billion and $9 billion inflows into the Taiwanese and South Korean markets, respectively, as investors bet heavily on an AI-driven surge in semiconductor demand.

Recently, overseas purchases have shifted towards India due to strong growth and expectations that the country will benefit from shifting the supply chain out of China with US support.

“You have people turning to India in the absence of China’s growth engine coming back in full force,” said Mohammed Apabhai, global markets head of Asia trading strategy at Citigroup, pointing to foreign inflows of about $14 billion so far this year.

“All the indicators we are looking at for the Indian market are very bullish,” he added. “Momentum is high, volatility is extremely low and currency markets are indicating very high foreign inflows.”

Foreign investment has also begun to appear in the emerging markets of Southeast Asia, driven by a more than 5 percent gain in the MSCI ASEAN index since July 7. The latest BofA survey revealed that a net 12 percent of respondents from Indonesia are overweight. Making it a favorite in the emerging markets of Asia East Japan.

The weakening of the dollar has also increased investment in Indonesia and other Southeast Asian markets, benefiting the region’s exporters. But Citi’s Apaabhai warned that “if the dollar appreciates, money going into these markets will get shaken up again”.

Get Free Equity Updates

we will send you one myFT Daily Digest Latest Email Rounding equities News every morning.

Foreign purchases in Asian emerging equity markets outside China exceeded flows into the region’s biggest economy for the first time in six years, as investor optimism about Chinese growth waned.

According to data compiled by Goldman Sachs, “ex-China” net foreign inflows into Asia’s emerging markets over the past 12 months totaled more than $41 billion, driven by nearly $33 billion in mainland Chinese equities through Hong Kong’s Stock Connect trading scheme. was more than the net flow of

The equivalent figures for the last 12 months were net outflows of $76.6 billion from emerging markets and net inflows of $42.8 billion into China.

The shift reflects the gloomy reality of China’s return to harsher COVID-19 restrictions, and highlights how economies elsewhere in the region are benefiting from changes in supply chains and strong US semiconductor demand.

“When you look at the region as a whole, you want to lean more towards markets that are more sensitive to US developments,” said Sunil Kaul, Asia-Pacific equity strategist at Goldman Sachs. He compared the sluggish recovery in China with strong growth elsewhere in the region. And hopes are growing that the US could avoid recession this year.

Deteriorating investor sentiment toward China was also reflected in Bank of America’s latest Asia Fund Managers survey, which found that a slight majority of nearly 260 respondents — those with more than $650 billion in assets under management — have cut their investments in China. less weight.

At the same time, however, 86 percent of fund managers surveyed by BofA expect Asia-Pacific markets outside Japan to rise over the next 12 months, partly due to “continued sentiment for regional equities (ex-China).” due to evaluation”. China’s slow growth and rising geopolitical risks have also increased demand for investment products outside China.

Manishi Raychaudhuri, Asia-Pacific head of equity research at BNP Paribas, said investors would remain “fence fence” on China until China’s growth outlook improves. He described the two key themes for Asia this year as “Buy India” and “Buy AI-powered technology”.

The latter topic has driven $10 billion and $9 billion inflows into the Taiwanese and South Korean markets, respectively, as investors bet heavily on an AI-driven surge in semiconductor demand.

Recently, overseas purchases have shifted towards India due to strong growth and expectations that the country will benefit from shifting the supply chain out of China with US support.

“You have people turning to India in the absence of China’s growth engine coming back in full force,” said Mohammed Apabhai, global markets head of Asia trading strategy at Citigroup, pointing to foreign inflows of about $14 billion so far this year.

“All the indicators we are looking at for the Indian market are very bullish,” he added. “Momentum is high, volatility is extremely low and currency markets are indicating very high foreign inflows.”

Foreign investment has also begun to appear in the emerging markets of Southeast Asia, driven by a more than 5 percent gain in the MSCI ASEAN index since July 7. The latest BofA survey revealed that a net 12 percent of respondents from Indonesia are overweight. Making it a favorite in the emerging markets of Asia East Japan.

The weakening of the dollar has also increased investment in Indonesia and other Southeast Asian markets, benefiting the region’s exporters. But Citi’s Apaabhai warned that “if the dollar appreciates, money going into these markets will get shaken up again”.