The latest relaxation of coronavirus travel rules, combined with other encouraging political signals, has started to attract some overseas investors to Chinese stocks, raising the odds that the market can maintain its rebound after months of heavy selling.

As the S&P 500 is about to close its worst first half since 1970 and bonds have taken a hit, China’s dejected stock markets are starting to look like shelter from a global storm of runaway inflation, bulls interest rates and fears of recession. .

China’s blue-chip CSI300 index is up about 20% from April lows, as is the Shanghai Composite after losses of more than 10% in the first quarter.

The gains, along with easing lockdowns and signals that Beijing may ease both virus policies and regulatory crackdowns, have prompted fund managers, who were leaving China in droves in March, to return.

Those on the sidelines “showed some increase in appetite for China over the past few weeks,” said Elizabeth Kwik, director of Asian equity investments at UK asset manager abrdn. “Some chose to complete their position.”

Foreign investors bought 74.6 billion yuan ($11 billion) worth of China-listed stocks in June so far, in what is expected to be the biggest monthly inflow this year, according to Refinitiv Eikon data. .

This week, travel and gambling stocks surged as China halved traveler quarantine to one week.

Investors are hoping it’s a sign that Beijing may eventually ease its draconian zero COVID-19 policy, and authorities are scrambling to deliver on their promises to support the world’s second-largest economy.

“COVID zero policy has been cited as the biggest hurdle facing investors as they seek to understand China’s current policy direction,” Morgan Stanley analysts said in a Wednesday report. “These latest developments will help restore investor confidence that economic growth is a priority.” Unlike the rest of the world, China does not have an inflation problem. COVID-coronavirus restrictions and the absence of massive consumer-focused stimulus have kept demand weak and capped prices, allowing the central bank to ease policy while most of its peers continue to tighten .

Senior officials also pledged to support capital markets and growth and eased a crackdown on once-hot sectors such as technology.

Shares of e-commerce giant Alibaba, which took a beating in 2020 and 2021, are up 60% from a record low in March.

Last Friday, JP Morgan analysts advised clients to add positions in China directly, a change from previous advice to retain indirect exposure through commodities or other markets.

PREVENT LOSSES

The market rebound is also helping to improve the performance of regional funds that remained invested last year and until March, when Western sanctions against Russia fueled fears that China could also become a target.

A Eurekahedge index that tracks Greater China-focused hedge funds with long-short strategies gained 1.1% in May, after losing 13.6% in the first four months of 2022.

Anatole Investment Management Ltd, a Hong Kong-based firm that manages around $1.9 billion with its flagship fund, saw monthly returns turn positive in May and extend into June after falling 22% in the first four months, said people familiar with his performance. They requested anonymity as they are not authorized to speak publicly. That was in part due to bets on Chinese internet companies after market-concerned Chinese authorities signaled a desire to end a nearly two-year regulatory crackdown.

Contacted by Reuters, the fund described this month’s expansion as significant and said Greater China remained its largest exposure.

Aspex Management, which manages around $7 billion, posted positive returns in April and May, according to documents seen by Reuters, cutting losses for the first five months of the year to 14.4%. Aspex did not respond to questions.

RESET

There are still reasons to be cautious and June’s $11 billion equity inflow is modest against a tide that saw around $50 billion in equity and bond outflows in the first quarter. , according to the Institute of International Finance.

Investors fear Western sanctions on Russia could serve as a model for China, while the health of the property market, once its engine of growth, has been a concern since developer China Evergrande defaulted on some debts last year. last.

State Street Global Markets Yuting Shao said the company has not returned to overweighting Chinese equities, while Ewan Markson-Brown, fund manager at CRUX Asset Management, avoided anything to do with real estate .

“The real estate market is still a big problem,” he said.

Yet the money is flowing again and the sentiment has changed.

The 20 largest open-ended and exchange-traded funds traded in Hong Kong with the Greater China equity strategy all posted positive returns last month and 17 of them increased their assets in May, according to Morningstar data.

Paul O’Connor, head of the multi-asset team at Janus Henderson in London, said China had experienced its “capitulation” and now had a chance to outperform.

“They’ve had a valuation reset and they don’t have the headwinds that we have in other places where central banks are draining liquidity and raising interest rates.”

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