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Investors have piled into equity funds focused on China after the country signaled economic stimulus measures in the wake of its property sector woes and beaten-down stock market, according to BofA Global Research.
China is “the world’s most enticing contrarian long ‘trade,’” said BofA investment strategists led by Michael Hartnett, in a note dated Jan. 25. No one “believes it’s an ‘investment,’” they wrote.
The BofA note, which pointed to large inflows of $11.9 billion into funds targeting Chinese equities in the past week, says the country’s central bank took steps to ease monetary policy after its stocks hit lows seen in October 2008 during the global financial crisis. The strategists said the easing follows “an exodus of foreign investors” and “epic deflation of property stocks.”
Cameron Brandt, director of research at EPFR, confirmed in an email to MarketWatch on Friday that funds targeting stocks in China attracted about $12 billion of inflows during the week ending Jan. 24. He said they “went almost exclusively to ETFs.” EPFR tracks combined capital flowing into both mutual funds and exchange-traded funds, or ETFs.
Read: Pummeled China ETFs jump after report Beijing may support its ailing stock market
The BofA strategists highlighted China’s central-bank cuts to interest rates and reserve ratio requirements for banks in the chart below, which also tracks the Shanghai property index.
BOFA GLOBAL RESEARCH NOTE DATED JAN. 25, 2024
China-focused equity funds attracted capital after “Chinese leaders discussed measures to support the country’s slumping equity markets and China’s central bank announced a 50 basis points cut in bank reserve ratio requirements,” according to a note Friday from EPFR.
See: China stocks jump again on plan for $139 billion cut to bank reserves
Meanwhile, Chinese stocks were falling Friday, with the China’s CSI 300
XX:000300
index’s 0.3% decline keeping it down 2.8% so far this year, according to FactSet data, at last check. The index is struggling after falling in each of the past three years.
As for exchange-traded funds, shares of the iShares MSCI China ETF
MCHI
were trading 0.5% lower around midday on Friday, bringing its year-to-date decline to around 6% – even after jumping earlier this week on stimulus hopes.
“Going into the final week of January, flows into China equity funds hit levels last seen” during early third quarter of 2015 for a “near record,” said EPFR. “The latest inflows have come as Chinese policymakers try to arrest a steady decline in domestic equity markets.”
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