The scale of China-focused exchange traded funds (ETFs) listed overseas has jumped significantly since October, a development that observers said reflected growing optimism among foreign investors on Chinese assets as their confidence in the outlook for the world’s second-largest economy has been further boosted by a package of supportive measures to stabilize the growth momentum.
The combined scale of the five large Chinese stock ETFs listed in the US is now $29.689 billion, up $10 billion from end-September, the Shanghai Securities News reported, citing relevant data.
Chinese stock ETFs listed in overseas markets saw net inflows of HK$117.9 billion ($15.16 billion) in October, a reading that was significantly higher than the inflows during the first nine months of this year, the report noted.
“As the capital market serves as a barometer of the economy, the upward trend mirrors the confidence of foreign investors in the outlook for the Chinese economy,” Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Monday.
Yang expected the inflow to continue, as the fundamentals of the Chinese economy remain steady and a series of stimulus policies in recent months have helped to stabilize and shore up market expectations. Also, Chinese assets are still “undervalued” after several years of declines, making them more appealing to foreign capital that seeks profitable returns on investments.
“The Federal Reserve’s interest rate cut cycle could also drive the appreciation of the yuan, which in turn may attract more foreign capital into Chinese assets,” Yang added.
As markets expected, the Federal Reserve cut interest rates by one-quarter of a percentage point on Thursday, adding to a previous half-point rate cut in September.
The Chinese A-share market closed higher on Monday, with the benchmark Shanghai Composite Index rallying by 0.51 percent and the ChiNext Index, tracking China’s Nasdaq-style board of growth enterprises, rising 3.05 percent.
The turnover on the Shanghai and Shenzhen stock exchanges reached 2.51 trillion yuan ($348.9 billion) on Monday, and this has stayed above 1 trillion yuan since September 24, which industry insiders said highlighted investors’ active trading.
According to a Goldman Sachs report, out of the $63.628 billion flows into global stock markets in the four weeks ended on October 30, the A-share market saw a net inflow of $24.385 billion, the National Business Daily reported.
Goldman Sachs said in another report released on November 4 that it maintained an “overweight” rating on Chinese A-shares and H-shares, and it expected a potential return of about 20 percent for these two markets over the next 12 months.
On Friday, Chinese lawmakers approved a State Council bill on raising the ceiling on local government debt by 6 trillion yuan to replace existing hidden debts, according to a press conference on Friday.
The new measure will add a combined 10 trillion yuan to China’s debt relief resources, Chinese officials said. It also adds to the package of incremental measures announced since September, which Yang said are expected to inject new impetus into the growth of the Chinese economy this year.