Global Investors Withdraw from Chinese Securities Amid Weakening State Support Prospects

Foreign investors dump Chinese stocks and bonds amid fading confidence

By [Author]

Introduction

Foreign investors have dumped Chinese stocks and bonds after losing confidence in Beijing’s promises of more help to shore up the country’s wobbling economy.

Investor sentiment

• Investors have almost completely reversed Rmb54bn ($7.4bn) in net purchases of Chinese equities
• Bondholdings of foreign institutional investors fell by Rmb37bn in July to Rmb3.24tn
• Selling has gained pace in August and is likely to accelerate

Reasons for reversal

• Disappointment in measures taken by the government to boost weak consumer spending
• Increasing frustration and concern from investors about the lack of any solid policy action
• Recent missed payments by Country Garden highlight Beijing’s reluctance to bail out struggling companies

Impact on Chinese securities

• China’s benchmark CSI 300 index has almost completely reversed its 5.7% rise following the politburo meeting
• 84% of respondents in a recent survey believe Chinese equities are in a structural derating

Renminbi’s exchange rate

• Continued selling expected to weigh on the renminbi’s exchange rate
• The currency has weakened past Rmb7.3 against the dollar and was close to falling past the 15-year lows touched last October
• Analysts bet against the Chinese currency

Central bank’s actions

The People’s Bank of China has shown its opposition to rapid depreciation

The central bank could use other tools to slow the renminbi’s fall

Conclusion

Despite challenges and declining investor confidence, the central bank has measures to stabilize the renminbi.