Foreign players keep faith in China's A-share market

Foreign investors are sticking with the market and buying more A shares, according to analysts, optimistic of a further easing in the financial conditions, despite the China equity market undergoing an obvious correction over the past week.

The biggest foreign investment quota holder in China, Hong Kong-based CSOP Asset Management, said it has recorded 1.6 billion yuan ($256.4 million) of net capital inflow into its FTSE China A50 Exchange-Traded Fund account this week, the biggest influx of funds this year.

The FTSE China A50 ETF is run under China's Renminbi Qualified Foreign Institutional Investor program, which offers a channel for offshore investors to trade China's A shares.

"In the recent week, this RQFII ETF has been trading at a premium on the secondary market and has taken a large number of subscriptions," said Larry Wong, marketing manager of CSOP Asset Management. "That shows overseas investors are increasing their holdings of A shares."

The benchmark Shanghai Composite Index has tumbled almost 5 percent since Monday, with the losing streak gaining momentum especially since Wednesday after the People's Bank of China, the central bank, abruptly announced a 50 basis points cut in banks' reserve requirement ratio, which economists think could inject more than 600 billion yuan of liquidity into the economy.

The benchmark SCI dropped 1.2 percent on Thursday and another 1.9 percent on Friday to 3,076.64, which some analysts put down to profit taking as the RRR cut rumor finally became a fact.

The market has been cooling down from last year's rally, with sentiment falling sharply before the upcoming Chinese Lunar New Year, which begins on Feb 19.

It appears, however, that foreign investors are still reluctant to turn their backs on it.

Official data show the Shanghai-Hong Kong Stock Connect, a program launched in November to give direct equity market access to both individual and institutional investors, has managed to increase capital inflow into the Shanghai market over the past month.

Thursday and Friday saw 3.8 billion yuan and 1.5 billion yuan, respectively, of net capital inflow into Shanghai, making a total of 38.6 billion yuan over trading in the past 24 days, according to official data.

"Many of our investors believe the loose monetary environment will last and some share prices at this point are attractive," Wang said.

Kinger Lau, an analyst with Goldman Sachs Group Inc, wrote in a note on Thursday that the RRR cut, together with other liquidity injections conducted by the central bank in the past several weeks, "seems to have sent a strong signal that policymakers are committed to safeguarding growth and combating deflationary risk, rather than worrying about the potential overheating in the financial markets".

Lau said while this may increase risk appetite in the short term, especially for A shares, and Goldman considers "any correction as a strategically sound buying opportunity".

Analysts said investors, however, remain wary too of ongoing corporate governance risk for Chinese corporates as the government's anti-corruption probes continues to broaden.

Executives from six state-owned companies have been accused of taking bribes, seeking sexual favors for contracts, funneling cash to relatives or using public money to fund banquets and overseas trips.

Those from China United Network Communications Group Co, Shenhua Group Corp and China Huadian Corp are included in the list, according to the official website of the Central Commission for Discipline Inspection of the Communist Party of China.

Shares in China Unicom dropped by 4.2 percent in Shanghai, China Huadian lost 5 percent in Shanghai, and 4.9 percent in Hong Kong, while Shenhua lost 3.4 percent in Shanghai and 1.7 percent in Hong Kong.

《Foreign players keep faith in China's A-share market》永久阅读地址: http://91kudian.com/yingyu/19984/