China still riding boost from reopening as foreign investors answer the call, add US$7.2 billion of equities in March

Inflows into China’s equities in March stood at US$7.2 billion, up from a rise of US$3.3 billion in February, according to the Institute of International Finance (IIF)
In contrast to China, emerging markets witnessed an outflow of US$400 million last month, a break from inflows in January and February

China's economic recovery

Wendy Wuin Beijing

Published: 12:00am, 7 Apr 2023

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Foreign investors continued to increase their holdings of China’s yuan-denominated assets in March amid the continuous upbeat sentiment after the country reopened its border and refocused on economic recovery, according to a US-based research report.

Inflows into China’s equities in March stood at US$7.2 billion, up from a rise of US$3.3 billion in February, according to the Institute of International Finance (IIF).

“Chinese equities are still enjoying the boost of sentiment provided by the relaxation of restrictions earlier in the year and thus have gained US$30 billion in the first three months of this year,” the institute said in its latest report.

In contrast to China, emerging markets witnessed an outflow of US$400 million last month, a break from inflows in both January and February, the report added.

Markets have begun to take a more cautious approach to developing-market assets as an early-year rally fades and a soft landing for the global economy appears

IIF

“Markets have begun to take a more cautious approach to developing-market assets as an early-year rally fades and a soft landing for the global economy appears,” the IIF report said.

The data also showed an inflow of US$3.02 billion in March for China’s debt, up from an inflow of US$776 million in February and an outflow of US$2.6 billion in January.

China’s financial regulators have recently played up the prospects of investment into Chinese financial markets.

“Overseas investors will continue to add yuan portfolios. Supported by a steady economic recovery and growing value of yuan assets both as an investment and safe-haven asset, China’s securities market will keep its attraction to foreign investors over the long run,” the State Administration of Foreign Exchange said in its annual balance of payment report at the end of March.

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Financial regulators have also monitored the spillover impact of the banking crisis in the United States and Europe.

Investors are also watching closely to check China’s economic resilience as Beijing has warned about a sluggish trade outlook due to weak external demand.

“In the near future, we expect the level of inflows lowering, mainly explained by a more cautious market due to low growth in G3 economies (the United States, the euro area and Japan), a reignited strength in the dollar and upcoming elections for a handful of [emerging markets],” the IIF report added.

“The silver lining in our perspective is in local currency debt, which may benefit from comparatively lower funding cost. We also see regional divergence among countries in the [emerging market] complex, with Latin America and [emerging] Asia benefiting from benign oil-supply dynamics.”

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