Despite better data, international investors shun Chinese stocks

Despite visible signs of economic improvement, foreign investors are still wary of Chinese stocks due to uncertainty over government policies and the distressed real estate market.

Between July and September, foreign investors sold a net 80.1 billion yuan ($10.97 billion) worth of Chinese A-shares, and the Hang Seng Index is still below the high set in January following the removal of COVID-19 restrictions.

Even though consensus predictions indicate that earnings growth in the offshore market will increase from 9.2% this year to 11.6% next year, investors throughout the world are keeping their distance. Consumer price growth of 0.1% in August also reduced worries about deflation.

Standard Chartered stated that it anticipates China's gross domestic product to grow 5.4% for the year, higher than the market consensus, citing improving economic data and encouraging levels of spending and travel over the China National Day holiday.

Markets and economics have become disconnected, according to Standard Chartered's Ding Shuang, chief economist for Greater China and North Asia. The economy was not as bad, he continued, but investor confidence was low.

Since July 2020, the average daily turnover of Chinese A-shares has decreased to 719 billion yuan in September. After China's securities watchdog tightened fundraising regulations in an effort to raise the prices of existing shares, the proceeds from initial public offerings fell 69% month over month, according to a study released by HSBC on Friday.

This month, according to Morgan Stanley, the active long-only fund managers it follows have decreased their average allocations to China to the lowest levels since 2020.