CICC: Both active and passive foreign capital are flowing out of the Chinese market
CICC released a research report indicating that there is a significant trend of global capital outflow recently, with active foreign capital accelerating its outflow from the Chinese market, amounting to USD 650 million, and A-shares experiencing an outflow of USD 190 million. Passive foreign capital has also shifted from inflow to outflow, totaling USD 210 million. In the global market, both the US stock market and the Japanese stock market have turned to outflows, while the outflow from the Indian market has expanded. Under the policy uncertainty following Trump's inauguration, investors are choosing to wait and see, leading to a tightening overall capital situation
According to the Zhitong Finance APP, CICC released a research report stating that the notable changes in global liquidity this week are: 1) The tracked EPFR data shows that as of this Wednesday (January 15), active foreign capital is accelerating its outflow from the Chinese market; 2) In terms of connectivity, the average daily trading volume of northbound funds has increased compared to last week, while southbound fund inflows have narrowed; 3) Global stock and bond market inflows have narrowed, and the money market has turned to outflows; 4) U.S. stocks have turned to outflows, and outflows from emerging markets have expanded.
In the domestic liquidity situation, both active and passive foreign capital are flowing out of the Chinese market, with active foreign capital outflows expanding. After a continuous correction since the beginning of the year, the market rebounded this week, which also confirms CICC's judgment that the Hang Seng Index has a key support level at 19,000 points. However, the market has not escaped the oscillation pattern; from the perspective of fund flows this week, as Trump’s inauguration approaches, more investors are choosing to wait and see or even take profits, leading to a further expansion of active foreign capital outflows. As of this Wednesday (January 9 to January 15), active foreign capital has accelerated its outflow from China to USD 650 million (vs. USD 160 million outflow last week), with outflows from A-shares accelerating from USD 57.5 million in the previous week to USD 190 million, and outflows from overseas Chinese stocks reaching USD 460 million (vs. USD 98.66 million outflow last week). Meanwhile, passive foreign capital also turned from an inflow of USD 510 million last week to an outflow of USD 210 million this week. The policy uncertainty following Trump's inauguration may continue to exert pressure on foreign capital in the short term, but compared to the peak in 2021, the proportion of Chinese stocks held by foreign capital has decreased from a peak of 15% in 2021 to 5.6%, underweighting by nearly 1.2 percentage points, suggesting limited further downside potential.
In the global liquidity situation, outflows from the Indian market have expanded, while U.S. and Japanese markets have turned to outflows. As of this Wednesday (January 9 to January 15), active foreign capital outflows from the Indian market have expanded to USD 430 million (vs. USD 70 million outflow last week), U.S. stocks have turned to outflows of USD 230 million this week (vs. USD 3.13 billion inflow last week), and the Japanese stock market has turned to outflows of USD 300 million (vs. USD 140 million inflow last week).
In the Chinese market: Active foreign capital is accelerating its outflow; southbound inflows are slowing down.
Overseas funds: EPFR shows active foreign capital accelerating its outflow. As of this Wednesday (January 9 to January 15), A-shares saw an active foreign capital outflow of USD 190 million (vs. USD 60 million outflow last week), with passive funds outflowing USD 280 million (vs. USD 150 million inflow last week); meanwhile, Hong Kong stocks and ADRs saw an overall outflow of USD 390 million (vs. USD 260 million inflow last week), with active funds outflowing USD 460 million (vs. USD 100 million outflow last week) and passive funds inflowing USD 70 million (vs. USD 360 million inflow last week).
In terms of connectivity funds: Northbound funds have stopped disclosing net buying amounts since August 16, and the average daily trading volume has increased this week. This week (January 13 to January 16), the average daily trading amount of northbound funds reached RMB 168 billion, greater than last week's RMB 162.8 billion trading amount In terms of individual stocks, Dongfang Caifu, CATL, Kweichow Moutai, Haiguang Information, and ZTE Corporation had the largest trading volumes.
Southbound inflows narrowed, with the mainland banking sector receiving the most inflows. This week (January 13th - January 16th), southbound funds totaled HKD 34.4 billion, with an average daily inflow of HKD 8.6 billion, a decrease from the previous week's average daily inflow of HKD 9.78 billion. By industry, the mainland banking, energy/raw materials, and insurance sectors received the most southbound fund inflows last week. In terms of individual stocks, Tencent Holdings and SMIC were the most favored by southbound funds this week, while Huahong Semiconductor and XPeng were sold off.
Global Market: Global stock and bond markets saw inflows narrow, while the money market turned to outflows; U.S. stocks turned to outflows, and outflows from emerging markets expanded.
Cross-market and asset: U.S. stocks turned to outflows, and outflows from emerging markets expanded. In terms of active foreign capital, U.S. stocks saw an outflow of USD 230 million this week (vs. an inflow of USD 3.13 billion last week), developed Europe saw an outflow of USD 1.71 billion (vs. an inflow of USD 290 million last week), the Japanese stock market saw an outflow of USD 300 million (vs. an inflow of USD 140 million last week), and outflows from emerging markets increased to USD 2.17 billion (vs. an outflow of USD 550 million last week).
Allocation Ratio: As of November 30, 2024, the allocation ratio of various major types of active funds to China is approximately 1.16 percentage points below the benchmark, which is basically flat compared to the low allocation of 1.17 percentage points at the end of October. In terms of allocation ratio, active funds with a global investment direction increased their allocation to the U.S. (+1.63 percentage points) and Singapore (+0.07 percentage points), while reducing their allocation to France (-0.37 percentage points) and Japan (-0.11 percentage points); in terms of under-allocation ratios, the U.S. (+0.24 percentage points), Japan (+0.14 percentage points), and Germany (+0.08 percentage points) saw significant increases in under-allocation ratios, while Brazil (-0.05 percentage points), India (-0.02 percentage points), and the U.K. (-0.01 percentage points) saw significant declines in under-allocation ratios. By regional type, funds managed by European managers were the main force behind the overall outflows; by sector, overseas funds were overweight in China's healthcare, consumer, semiconductor and hardware, and capital goods sectors, while underweight in internet, finance, and real estate sectors.
