NIKKEIASIA April 10, 2022 22:23 JST |DATAWATCH|”Foreign cash flees China as investors shun autocracies” “Net outflows surge as Ukraine war spooks markets” By Takeshi Kihara Inujima
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Summary by 2244
“Market data shows foreign investors sold a net 38.4 billion yuan ($6.04 billion) of Chinese stocks and bonds in the January-March period, one of the highest such quarterly figures on record.” Likely Russia’s invasion of Ukraine is a key driver behind this “very unusual…capital flight." Foreign capital inflow continued through February but “flipped to a net outflow of 45.2 billion yuan in March.” Bond investment by foreign investors fell “by 80.3 billion yuan in February…[the]...combined net selling of stock and bonds in the first quarter topped outflows at the time of ‘China Shock’ of 2015 and the COVID-19 crisis in 2020.”
Looking at charts of foreign investment in Chinese stocks dating back to 2015 shows that foreign investment in Chinese stocks, with notable exceptions, grew since 2016, peaked in January of 2020 to more than 50 billion yuan and hovered there with some fluctuation until just recently. The exceptions were some monthly net outflows in 2015, 2019, 2020, and now in January 2022. The trend in foreign investment in bonds generally shows a steady rise from 2015 to more than 200 billion yuan in 2021 and now a fall of nearly 100 billion yuan. Notable monthly exceptions but relatively smaller outflows were noted in 2016, 2017, 2019 and 2020 all mostly less than about 25 billion yuan.
According to the article’s author “Investors are not simply adjusting positions for the short term, but reviewing their long-term strategy as they begin to pay attention to China’s political structure and value systems–something many have largely ignored until now.”
Meanwhile, investments in Freedom ETF (“ETFs linked to the Freedom 100 Emerging Markets Index”) have increased sharply from about $20M in January 2021 to about $175M now. Looking at investment flows data from 2010 US investment in China was relatively flat but jumped in 2017, 2018 and then fell back in 2019 and 2020. At the same time China investment in the US rose steadily from 2010 to 2015 then surged in 2016 and 2017 then fell after that.
Some of these changes were driven by governmental policy changes both in the US and China. So while there is some “decoupling” now between the US and China Wang Shengzu (Haitong International) notes “there could be a chance for ‘recoupling’ in the future, given the scale of Chinese and Hong Kong markets and their relations with the US and Europe.” Indeed the US and China “depend on each other…[to the tune of] of $3.3T” in stocks and bonds at the end of 2020.