Dec 29, 2023

Foreign investors have unwound a massive bet on a fast Chinese recovery this year, but this week’s intense day gives hope.

China-50-–-Daily-Chart

China 50 – Daily Chart

The China 50 blue chip index rallied by 2.40% on Thursday and now targets the previous low at 11,569. A close above that level should aim for the 12,000-12,300 price range.

The broader Asian share market touched five-month highs as market bets increased on aggressive rate cuts next year, extending a big rally in US stocks and bonds and leaving investors exposed to disappointment next year. Foreign investors also bought a net 11.3 billion yuan ($1.59 billion) of Chinese stocks via the Stock Connect, the most significant daily inflow in five months.

In mainland markets, new energy stocks were higher by 6%. In contrast, shares in real estate developers, consumer stocks and tourism firms rose between 2% and 3%. “In the market, valuation and sentiment indicators are all at record low levels,” said Huajin Securities. The broker said markets expected possible rate cuts early next year, while recent data showing double-digit gains in China’s November industrial profits also helped sentiment.

The foreign investment flows are essential as the FT noted a significant unwind of the Chinese economic recovery bet this year. Nine-tenths of the foreign investment that flowed into China’s stock market in 2023 has already left, driven by doubts about Beijing’s desire to take serious action to boost flagging growth.

Since a high of Rmb235bn ($33bn) in August, net foreign investment in China-listed shares has slumped by 87% this year to Rmb30.7bn, according to the FT, using Stock Connect data.

International investors have been net sellers since August, spooked by missed bond payments by developer Country Garden, which threatened a more significant crisis in the country’s property sector.

Relations between China and the US have also improved recently, but that has not improved Chinese stocks. Traders should expect a test of the lower resistance level with a chance to target 12-12,300 in early January.

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