Source: Jin10 Data
Author: Wu Yu.

At the end of September, the Chinese government announced preliminary stimulus measures including interest rate cuts and adjustments to bank liquidity requirements, which propelled the Chinese stock market to a sharp rise and also triggered an investment frenzy in China in overseas markets. At the same time, foreign capital seems to be less interested in markets in other Asian countries such as India.

For the week ending October 2, EFPR tracked emerging market equity funds recorded the second largest weekly inflow of funds this year, with almost all of these inflows pouring into the Chinese market.

EPFR Global's research director Cameron Brandt stated that foreign funds flowing into the Chinese stock market had reached "astonishing" levels: foreign funds net inflows into the Chinese market exceeded 13 billion US dollars by the week ending October 2, setting a record for the largest single-week scale in history. In comparison, India's net fund inflow for the week was 0.101 billion US dollars, less than one-tenth of China's.

Brandt stated that since last year, the average weekly inflow of foreign funds into India has been between 0.4 billion and 0.5 billion US dollars, and last week's inflow indicates a sharp decline compared to the annual average level.

Some people are selling other stock markets to provide funds for this rotation trade, which partly explains the sell-off in emerging markets other than China this week. As of last Friday's close, India's main stock index NSE Nifty fell by about 4.5% for the week, marking the largest decline since June 2022.

Brandt expects the upward trend in the Chinese stock market to continue for a while. He said, "China has clearly stated that they want the stock market to rise, and this situation may continue for a period of time."

Crazy inflow of funds into U.S.-listed China concept ETFs

Last week, during the closure of the Mainland Chinese financial markets for the National Day holiday, investors poured $5.2 billion into China market-related ETFs listed on U.S. exchanges, while last year such ETFs saw an average weekly outflow of $27 million. This significant shift reflects a sharp change in overseas investors' sentiment towards investing in the Chinese market.

Some asset management companies believe that this optimistic sentiment can continue.

Michael Reynolds, Vice President of Investment Strategy at the New York-based wealth management firm Glenmede Trust, said, "The market has been waiting for China to make credible commitments to get the economy back on track. Now we need to see follow-up actions."

KraneShares founder and CEO Jonathan Krane stated, "The Chinese market has been oversold." According to Morningstar's data, the company's flagship ETF attracted $1.39 billion in new assets just last week, leading to a profitable recovery in fund flows since the beginning of the year. $KraneShares CSI China Internet ETF (KWEB.US)$ It attracted $1.39 billion in new assets just last week, resulting in a profitable recovery in fund flows since the beginning of the year.

Krane believes that the recent surge in Chinese market stock prices is just the beginning, as investors' exposure to Chinese stocks remains low. He added: "The current inflow of funds is only a small percentage of global investors returning to China, and this is a very early response."

Data from TrackInsight, a data analysis company based in Paris, shows that more than twenty ETFs focusing on China achieved double-digit returns in the past week, with gains ranging from 10% to 28%, surpassing over 3,000 other ETFs traded in the US market last week.

The largest China concept ETF in terms of investment scale is Blackrock's iShares China Large-Cap ETF. According to Morningstar's statistics, the fund saw inflows of up to $2.7 billion last week.

Michael Barrer, ETF capital market director at Matthews Asia, asset management company, stated, "When the market is so volatile, funds will first flow into these (index-linked) products. Despite this, its $44.8 million Matthews China Active ETF (MCH.US) surged after last week's net inflow of $11.7 million.$MATTHEWS CHINA ACTIVE ETF (MCH.US)$soaring after a net inflow of $11.7 million last week.

Jason Hsu, Founder and CEO of Rayliant Global Advisors, an asset management company, stated that for China-focused ETFs to continue holding new assets, the Chinese government needs to announce a comprehensive and far-reaching reform package. He said: "The trigger for the next round of gains must be the formal implementation of a new stimulus plan and an extended timeline."

Dave Mazza, CEO of Roundhill Investments, mentioned he has observed a shift in investor sentiment. The company launched last week$Roundhill China Dragons ETF (DRAG.US)$Focus on the nine Chinese technology companies that Roundhill considers the largest and most innovative. Mazza said the ETF attracted a net inflow of $35 million in the first two trading days.

He added, "We believe at some point soon the situation will reverse, and Chinese assets will once again become investable."

Editor/Jeffy