Key facts
- Citigroup upgraded Chinese equities to overweight and downgraded South Korean stocks.
- Foreign investment in China's securities market saw net inflows of approximately $33 billion in the first five months of the year.
- Foreign investors increased their holdings of onshore Chinese stocks and funds by $10.1 billion in the first half.
- UBS reiterated its overweight stance on Chinese equities, citing stronger revenue and earnings growth compared to India.
- Recent China-US trade frictions are expected to cause short-term market fluctuations but not change the medium-term outlook for Chinese stocks.
Citigroup has upgraded Chinese equities to an overweight rating and downgraded South Korean stocks, aligning with a growing number of global financial institutions that are becoming more optimistic about China. This shift indicates a broader reallocation of global capital as investors look beyond saturated technology trades in other Asian markets to find more affordable shares and new artificial-intelligence opportunities within China.
Foreign investment in China's capital markets has surged in the first half of the year, with net inflows into securities markets totaling approximately $33 billion in the first five months, reversing outflows from the latter half of the previous year. This renewed confidence is particularly notable in the stock market, where foreign investors increased their holdings of onshore stocks and funds by $10.1 billion in the first half, ending a two-year trend of net outflows. The State Administration of Foreign Exchange (SAFE) reported that this net increase accelerated to $18.8 billion during May and June.
Jia Ning, head of SAFE's Balance of Payments Department, attributed the expected continued, gradual increase in foreign allocations to renminbi assets to China's sound economic fundamentals, large financial markets, improved market access, and investor demand for diversification. Heightened global financial market volatility has prompted investors to seek more diversified portfolios, with renminbi-denominated assets offering currency stability and an independent return profile for risk diversification. A survey by the Official Monetary and Financial Institutions Forum indicated that 30% of central banks globally plan to increase their renminbi asset allocations, and several international investment banks have upgraded their outlooks on Chinese assets from neutral to overweight.