Overseas institutions rush to buy Chinese capital assets

Some overseas institutions have seen a perfect opportunity in the undervalued Chinese market. Traders, fearful of missing out on the rebound, rushed to buy Chinese assets. The call options of U.S.-listed China exchange-traded funds (ETFs) surged.

Analysts said that recent positive factors in the market have increased and the domestic policy environment has ushered in a marginal improvement. The negative feedback on the capital side has gradually eased while investors' cautious expectations have been raised.

China equity funds attracted $11.9 billion in inflows last week, the largest amount since July 2015 and the second-largest in history, according to data from EPFR, a provider of fund flows.

Meanwhile, call options trading on iShares China Large Cap ETF, one of the largest ETFs in the U.S. that tracks China's stock market, reached its highest level in more than a year, according to trading website marketchameleon.

All of these signals show that some big foreign banks and hedge funds have seen the current valuation attraction of the Chinese market. China's stock market now offers the most valuable investment opportunity in the world, analysts said.

They also pointed out that positive changes are taking place at the policy level, so that short-term liquidity risks are gradually being resolved, and the market index has momentum for repair.

The A-share market is expected to go high from a low base at the beginning of the year, and a bull market is ready to emerge, Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times on Monday.

“In recent weeks, a number of national institutions have subscribed to large sums of ETFs, which made the market rebound sharply after bottoming out, and market confidence has been effectively boosted. The worst is over for the capital market,” said Yang.

A stakeholder in a listed medical equipment manufacturing company surnamed Zhang told the Global Times that the share value of many Chinese companies is underestimated in the market.

“For me, many companies’ profit growth rates are not being shown in the capital market, which also means that companies are not financed by the stock market. The A-share market indices are separate from the performance of the real economy,” said Zhang.

Apart from policies released by China’s securities regulator, the central bank on January 24 announced that it will cut the reserve requirement ratio (RRR) for all banks by 50 basis points from February 5, which will provide the market with about 1 trillion yuan ($139.3 billion) of long-term liquidity.

Judging from the past, the RRR cut will bring more liquidity support to the capital market, especially for listed companies in the banking, real estate, manufacturing and consumer industries, which will play a positive role in boosting investor confidence, Lian Ping, president of the China Chief Economist Forum, told the Global Times on Monday.

“There had been expectations for the People’s Bank of China to cut the RRR, but the intensity was larger than expected,” Zhou Maohua, a macroeconomic analyst at Everbright Bank, told the Global Times.

For the stock market, the central bank's RRR cut will increase support for the macroeconomy, helping to boost market expectations for an economic recovery and corporate earnings improvement.

“Although the A-share market rebounded last week, the overall market has not yet seen enough incremental capital, and I think it will take some time for confidence to recover,” Chen Zunde, general manager at Guangdong Fund Investment Co, told the Global Times on Monday.

After confidence improves and more capital enters the market, the A-share indexes will be pushed up, said Chen.