More and more signs indicate that the strong rebound of the Chinese stock market is triggering a directional shift in global investment portfolios, and many overseas investors are racking their brains to try to ride the wave.
According to market observers, the wave of funds that left the Chinese stock market earlier and invested in Japanese and Southeast Asian stocks is now desperately trying to reverse direction following the latest stimulus policies introduced by the Chinese government. This transformation actually began quietly before the holiday: the stock markets of South Korea, Indonesia, Malaysia, and Thailand all experienced net outflows last week; According to statistics from BNP Paribas, over $20 billion has been withdrawn from the Japanese stock market in the first three weeks of September.
This latest phenomenon of capital flow may indicate that chasing Chinese assets is becoming the latest trend in the Asia Pacific and even global market. Earlier this year, the Japanese stock market was booming after breaking a more than 30-year high, the Indian stock market also hit new highs due to accelerated economic growth, and the Southeast Asian market was also boosted after the Federal Reserve cut interest rates. Nowadays, as the feng shui takes turns, a new global market trend seems to be walking alongside the "dragon"
Eric Yee, Senior Portfolio Manager at Atlantis Investment Management in Singapore, said, "We are reducing our long positions across Asia to provide funding for buying Chinese stocks. Everyone is doing this. This is a good policy driven recovery. You don't want to miss this opportunity
With the Chinese government announcing a series of measures to stimulate economic growth last week, the MSCI China Index has risen more than 30% from its recent low. The trading volume of both A-shares and Hong Kong stocks reached a historic high on Monday of this week. Overseas investors have lamented on social media, using the FTSE China A50 Index futures as an example, that the Chinese stock market has erased 938 days of decline in just 7 days.
Bet on China's hedge funds to reap a bountiful harvest
According to insiders, the crazy rise in the Chinese stock market over the past week has brought over 25% returns to some hedge funds betting on Chinese assets.
It is reported that Triata Capital China Fund surged 44% last month, BlueCreek China Fund's return rate was as high as 31%, and Yunqi Capital China Fund jumped 26%. Many other funds have also gradually recovered from the decline earlier this year. According to data from Eurekahedge Pte, with the strong rebound of A-shares, hedge funds focused on the Chinese market have finally obtained the long-awaited opportunity.
The first wave of rebound last week greatly benefited hedge funds whose bullish positions in the Chinese stock market far exceeded their bearish positions. Many people optimistically believe that careful selection of individual stocks can even bring returns that outperform the overall market. After billionaire investor David Tepper declared that he was buying all assets related to China, many hedge funds flooded into Chinese stocks at a record speed.
Data shows that Goldman Sachs hedge fund clients' net purchases of Chinese stocks last week reached the highest level since the bank's main brokerage business statistics in 2016.
It is reported that Mount Lucas Management, a hedge fund from the United States, has established bullish positions in Chinese ETFs, while Singapore's GAO Capital and South Korea's Timeportfolio Asset Management are buying Chinese blue chip stocks. According to the latest document from the Hong Kong Stock Exchange, JPMorgan Chase increased its holdings of 39.861682 million shares of Ping An H shares in China on September 26, at a cost of approximately HKD 1.771 billion, increasing its shareholding to 8.28%.
We believe that some foreign investors are reducing their excess holdings in Japanese stocks and reallocating them back to Chinese stocks, "said Jason Lui, a strategist at BNP Paribas, in a report on Wednesday
It should be clarified that this transformation is still in its initial stage. Mohit Mirpuri, a fund manager at Singapore's SGMC Capital Pte., said, "Although it's still too early, the argument of 'shifting from the Japanese or Indian markets to China' makes sense. The current momentum is difficult to ignore
Despite experiencing a surge of over a week, the valuation of Chinese stocks is still not high - even with the recent rebound, the forward P/E ratio of the MSCI China Index is still only about 10.8 times, lower than the average of 11.7 times over the past five years.
Joseph Zhang Xiaogang, founder of BlueCreek China Fund, said that the valuation of the Chinese market is still very cheap. Previously, global investors had too much negative bias towards China and its economy, and they need some time to change their bias. He predicted that there are still many measures in the Chinese government's toolbox to support the economy.
According to EPFR data as of the end of August, the total allocation ratio of global mutual funds in Chinese stocks is about 5%, the lowest level in the past decade, highlighting that there is still a lot of room for many funds to increase their holdings in Chinese stocks.
According to research firm DataTrek Research, if we draw lessons from historical experience, the current rebound of the Chinese stock market may still have a long way to go. The institution compared the relative performance of iShares China Large Cap ETF (FXI) and SPDR S&P 500 ETF (SPY) over a 100 day rolling time span. It was found that during periods of positive policy changes in China, such as 2009, 2015, and 2023, the performance of Chinese stocks typically exceeded that of US stocks by 30 percentage points or more. And now, the relative excess return is only 13 percentage points.
Nicholas Colas, co-founder of DataTrek, wrote in a statement to clients that from this perspective, given the performance of the Chinese stock market after the previous policy shift, there is definitely more room for Chinese stocks to rise compared to US large cap stocks.
Seeing the future, why not buy!
It is worth mentioning that after the continuous surge of A-shares last week, although the Chinese stock market is currently in the midst of the National Day Golden Week holiday, the bullish voices of overseas institutions have not stopped.
Morgan Stanley stated on Wednesday local time that if the Chinese government announces more spending measures in the coming weeks, the Chinese stock market may further rise by 10% to 15%.
The expectation of further increasing fiscal expansion has returned to the table, making investors view China from the perspective of inflation for the first time in a long time. The last time investors viewed China through this lens was after the beginning of last year. At that time, global investors gave valuations of around 12 times the expected price to earnings ratio of the MSCI China Index, "Laura Wang, Chief China Equity Strategist at Morgan Stanley, said in an interview.
The 15% upside mentioned above is clearly not the most optimistic forecast in the current market. GaveKal Dragonomics China based analyst Thomas Gatley has threatened that if everything goes according to plan, the surge in the Chinese stock market over the past week may only be the prelude to a "super rebound" - with the highest increase possibly reaching 100%.
He pointed out that the sustainability of this rebound is likely to depend on whether Chinese decision-makers can launch the combination of monetary and fiscal stimulus expected by international investors. Assuming that monetary, fiscal, and direct market support policies can be effectively implemented, it can basically guarantee that the stock market will continue to rise.
Gatley shared his analysis results in a report on Monday, which is based on the performance of the Chinese stock market over the past 20 years. According to his statistics, since the launch of the Shanghai and Shenzhen 300 Index in 2005, the Chinese stock market has experienced a total of five "super rebounds". Among these five remarkable rebounds, only two (starting in 2006 and 2017) were driven by strong self economic growth and rising corporate profits. The other three were driven by stimulus measures.
Gatley stated that the rebound driven by stimulus measures has increased by approximately 50% to 100% from trough to peak. Therefore, if there is another round of rebound like this, there should still be a lot of room for upward movement. In addition, although both A-shares and H-shares have shown strong gains so far. But in past super rebounds, A-shares have often performed better than H-shares.
Nicolas Amstutz, Partner at Lotus Peak Capital in Singapore, also stated that we believe the future environment in China is favorable for focusing on Alpha's investment strategy.
In the Hong Kong market, which was the first to resume trading this week, many Hong Kong stock brokers have entered one of the busiest periods of their careers so far. Xu Yibin, CEO of Yaocai Securities, a large local brokerage firm in Hong Kong, praised this round of Hong Kong stock market rise as a "once-in-a-century" event.
He said that the current market reminds him of 2015, when the rush of buying sparked a bull market in Hong Kong and mainland China. At present, the company's account opening volume has also surged. Many customer support personnel of the company have cancelled their scheduled holidays and are on standby 24 hours a day to handle an unprecedented surge in customer inquiries.
Tiger Securities, a trading platform popular among retail investors in Hong Kong, also reported a 73% surge in account openings last week.
Of course, with the enthusiasm of investors soaring, some sectors in the market showed signs of a correction after overheating on Thursday - the Hang Seng Technology Index fell more than 7% in intraday trading, and the Hang Seng Index also fell more than 4%, led by some recent strong stocks. However, in the afternoon, the decline quickly narrowed again, which undoubtedly reflects the resilience of buying in the current market.
Zhao Chen, Chief Global Strategist at Alpine Macro, an investment research firm, stated that although it cannot be guaranteed that improved profits and cheap valuations will definitely lead to outstanding performance in the Chinese stock market, in the long run, buying Chinese stocks may already be a value investment!