Chinese stocks see 'largest outflow months ever' amid slowdown: Strategist
Amid China’s economic slowdown, there was a record $12 billion of outflows from foreign investors in Chinese stocks. KraneShares CIO Brendan Ahern joins Yahoo Finance Live to discuss investor sentiment regarding China.
"The general trend of foreign ownership is still quite high," Ahern says. "If anything else, it shows that maybe foreign investors are very poor market timers because this outflow is occurring just as Chinese equities are enjoying one of their strongest weeks in quite some time.”
Ahern lists China's zero-COVID policies, its real estate meltdown, crackdowns on tech companies, and the nation's own diplomatic relationship with the U.S. as causes that "led the asset class almost to be eviscerated."
Video Transcript
AKIKO FUJITA: There's a headline that caught our attention yesterday in the FT that pointed to $12 billion in outflows from foreign investors in Chinese stocks, a record. How much of that is warranted when you consider the state of the economy in China today?
BRENDAN AHERN: Yeah, certainly, this is the-- one of the largest outflow months ever in the case of foreign ownership of Chinese A-shares stocks listed on the Shanghai and Shenzhen Exchange. The number is larger than it was. If you step back and look at the inflows over the last 5 years, it's over $200 billion.
So the general trend of foreign ownership is still quite high. If anything else, it shows that maybe foreign investors are very poor market timers because this outflow is occurring just as Chinese equities are enjoying one of their strongest weeks in quite some time.
SEANA SMITH: But Brendan, what about so much concern, though, about the economy right now, the slowdown that we're seeing, the fact that it doesn't seem like investors are confident in what they're seeing play out in China? So what needs to change? How do you improve investor sentiment when it comes to investment opportunities there?
BRENDAN AHERN: Well, an investor sentiment is very, very low at this point. I think in general across institutional investors that we've been speaking to globally, you have a significant overweight to US equities versus non-US equities. That's driven just by significant outperformance of US equities over the last 14 years.
But I think more specific to China you're seeing, I think the key is that some of the issues that have really been headwinds for investors in the space things like the Holding Foreign Companies Accountable Act, zero-COVID, US-China diplomatic relationships, real estate, China's internet regulation, you take all of these issues. It's really led the asset class almost to be eviscerated.
And I think what's happening is you're seeing a pivot from the Chinese government. And you're seeing a number of these issues, things get less bad. Or just simply, they are improving. And I just think investors' ownership is very misaligned for some of these issues to actually recede, to improve, or at a minimum get less bad. So we're actually constructive from a contrarian perspective for that reason.
AKIKO FUJITA: So what is that investment case look like?
BRENDAN AHERN: Well, certainly, the Chinese government is literally telling investors to buy their stock market that they've cut a lot of the fees associated with holding Chinese equities. They've limited the number of IPOs because the IPOs represent more supply. At the same time, they've tried to promote the underlying companies to issue dividends and to buy back their stocks.
So I think the government is very aware that the economy has had a very tepid recovery. And you're seeing these significant changes. You're cutting the mortgage rate for existing mortgages. That puts it's estimated about 12,000 RMB back in the pockets of Chinese households.
At the same time, they've cut the bank deposit rate, which means they don't want to see that money go back into bank accounts. They want to see it get spent. So you're seeing this pivot from the Chinese government to try to stimulate domestic demand. And that's where we're very constructive specifically within China on the domestic consumption sector.
