A seismic shift is brewing in the global investment landscape as a resurgence in Chinese stocks gains momentum. As Beijing’s latest stimulus package takes effect, investors are poised to rebalance their portfolios, redirecting funds from Japan and Southeast Asia back to China. This reversal is already underway, with South Korea, Indonesia, Malaysia, and Thailand experiencing net outflows last week, while Japan saw a whopping $20 billion exodus from its equity market in the first three weeks of September.
The stellar performance of Asia ex-China equities, driven by Taiwan’s chipmaking boom, India’s economic growth, and Southeast Asia’s lower US interest rates, may be coming to an end. In contrast, China’s MSCI Index has surged over 30% from its recent low, fueled by a barrage of growth-boosting measures and attractive valuations. Trading volumes in China and Hong Kong have hit record highs, with the MSCI China gauge still trading at a relatively low 10.8 times forward earnings.
Mutual funds globally have a mere 5% allocation in Chinese equities, the lowest level in a decade, leaving ample room for fund managers to increase their holdings. “It’s a policy-driven recovery from rock bottom,” said Eric Yee, senior portfolio manager at Atlantis Investment Management. “You wouldn’t want to miss out on such an opportunity.”
While some analysts view this fund flow as a temporary event, others believe it marks the beginning of a broader rotation out of Japan and India and into China. As Mohit Mirpuri, a fund manager at SGMC Capital, noted, “China will be the standout performer by the end of 2024. The current momentum is hard to ignore.”
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