Chinese retail investors, eager for returns, looked overseas – then came Monday

As Chinese exchanges showed little promise, domestic investors turned to overseas markets – a decision that may prove costly after Monday’s rout

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Why investors can expect more market volatility after recent global stock sell-off

Frank Chenin Shanghai

Published: 10:00am, 7 Aug 2024Updated: 8:56am, 8 Aug 2024

Chinese investors – nudged into cryptocurrencies and overseas exchanges by a persistent bear run at home – may have inadvertently moved from frying pan to fire, after a devastating rout on Monday wiped out trillions in value from global markets.

While some are feeling the burn and debating whether to cut their losses and exit these markets entirely, more say they will keep the faith, electing to hold their positions and not move their remaining capital into domestic bourses.

A moribund stock market and deeply depressed property sector left few options for individual Chinese investors, many of whom chose to seek their fortune in Western markets and others in Asia.

As China’s economy attempts a return to pre-pandemic stability, its premier indexes have reflected its struggles. Shanghai’s Composite Index has mostly remained flat in the first half of 2024, while the Hang Seng Index in Hong Kong has dropped 15 per cent from this year’s peak in May.

But those that poured their money into US and Japanese exchange-traded funds (ETFs) – pools of investments which are bought and sold in a similar manner to a security – were among the hardest hit, with 127 out of China’s 128 overseas-invested ETFs losing value on Monday, according to financial data provider Wind. Several funds managed by China’s leading brokerages saw declines of more than 9 per cent.

“I lost about 30,000 yuan (US$4,208), about four months’ pay,” said a high school teacher surnamed Zheng. A resident of Suzhou, a city in China’s east close to financial capital Shanghai, Zheng put some of his savings into the Huaan Mitsubishi Japan-Econ 225 ETF – the Chinese fund which suffered the deepest drop on Monday, falling more than 10 per cent.