Interest in A shares spreading

Updated 2017-11-02 09:34:09 Global Times

Foreign investors tempted by stronger yuan: expert

Overseas investors' holdings of A-share assets have been surging this year, not only because of the robust Chinese economy and the strengthening yuan, but also because of interest in the stock links that the Chinese government has built between the mainland market and Hong Kong, analysts told the Global Times Wednesday.

Overseas institutions and individuals held 1.02 trillion yuan (4 billion) worth of domestic equities by the end of September, up from 908 billion yuan at the end of August, data released by the People's Bank of China (PBOC), the country's central bank, showed on Wednesday.

Overseas entities' holdings of domestic equities have surged in eight of the first nine months this year, according to the PBOC data.

The data also showed that overseas entities held 1.1 trillion yuan worth of domestic bonds by the end of September, up from 1.01 trillion yuan at the end of August.

An analyst at Shanghai-based Shenwan Hongyuan Securities, who wished to remain anonymous, told the Global Times on Wednesday that with China's currency having strengthened recently, overseas investors are paying more attention to yuan-denominated assets like equities and bonds.

"Overseas investors' interest in yuan assets is often linked with trends in the currency. As the yuan has shown an appreciation trend this year, overseas investors are also gradually showing more confidence in domestic financial assets," he said.

The yuan's central parity exchange rate against the U.S. dollar reached 6.6300 on Wednesday, compared with 6.9498 at the beginning of this year.

"Also, there has been a rebound in the Chinese economy, so the returns on domestic financial assets have shown an evident upward trend in recent months. This also appeals to overseas investors," he noted.

Stock link appeal

Cheng Shi, head of ICBC International Research, told the Global Times on Wednesday that the stock link mechanisms - the Shanghai-Hong Kong and Shenzhen-Hong Kong stock links - have increased the level of participation by overseas investors in domestic stock markets.

The analyst from Shenwan Hongyuan Securities also told the Global Times that overseas investors are more inclined to buy A-share assets through the stock link mechanisms than through other channels.

"They can also invest in A shares by using the Qualified Foreign Institutional Investors (QFII) program. But for one thing it's a little difficult to register with QFII. Also, they are worried that if there was any change in China's foreign currency policies, they might not be able to get back their principal via QFII," he said.

The analyst also anticipated that more overseas capital would continue to flow into the domestic financial market in the future.

Also, as many sectors are expected to show "much-higher-than-expected performance" amid the economic rebound, "the returns on domestic financial assets, especially equity assets, will be high in the medium-to-long term, and that means inbound investment will continue to increase," he said.

No big impact so far

Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, said that overseas investors tend to prefer blue-chip stocks, or stocks with higher valuations. "This will breathe some fresh wind into the A-share markets, which are accustomed to short-term, speculative trading," he noted.

"It is a bonus, though not a big one, for the A-share markets, as domestic investors would anticipate that A shares would rise with the help of offshore capital," he told the Global Times Wednesday.

But Cheng noted that overseas investors' participation in A-share markets is still at a relatively low level.

According to a report by Shanghai Securities News on Wednesday, equities held by overseas entities by the end of September accounted for about 1.7 percent of the total market capitalization on the A-share markets at that time.

"So far, overseas capital hasn't brought any material impact in terms of either the investment model or the fluctuations in the A-share markets, but nor will it bring any risks," Cheng told the Global Times on Wednesday.

On Wednesday, the Shanghai Component Index rose by 0.08 percent to 3,395.91 points, while the Shenzhen Component Index fell by 0.15 percent to 11,350 points.

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