The recent surge in Chinese stocks is causing a significant shift in global portfolios as investors scramble to capitalize on the rally. This trend is a result of Beijing’s latest stimulus efforts and has already led to a withdrawal of funds from other Asian markets, such as South Korea, Indonesia, Malaysia, and Thailand, as well as Japan.
This movement marks a potential turning point for Asia ex-China equities, which have seen substantial gains as investors sought higher returns outside of China. For example, Taiwan’s chipmakers and India’s economic growth have been driving forces behind the region’s market performance. Additionally, Southeast Asian markets have benefited from lower US interest rates.
Eric Yee, a senior portfolio manager at Atlantis Investment Management, explains, “We are trimming our long positions across Asia to fund China purchases. Everyone is doing so. It’s a good policy-driven recovery from rock bottom. You wouldn’t want to miss out on such an opportunity.”
The MSCI China Index has surged over 30% recently, fueled by government measures to stimulate growth. Attractive valuations have also played a role, with the MSCI China gauge still trading below its five-year average forward earnings multiple.
Despite the momentum, mutual funds globally have a minimal 5% allocation to Chinese equities, the lowest level in a decade. This indicates room for funds to increase their exposure to the Chinese market.
BNP strategists have observed a shift in investor sentiment, with foreign players reducing their Japan overweight and reallocating to China. However, this trend is still in its early stages, and fund flows from India and other emerging markets remain steady for now.
Some analysts, like Jeffrosenberg Chenlim of Maybank Investment Bank Bhd., view this shift as temporary. The recent pullback in Chinese stocks listed in Hong Kong supports this sentiment, as the market is set to break a 13-day winning streak.
Looking ahead, Mohit Mirpuri, a fund manager at SGMC Capital Pte in Singapore, anticipates China to outperform other markets by 2024. He highlights the current momentum in China as a compelling reason for investors to consider a rotation out of Japan or India into the Chinese market.
While the situation continues to evolve, it’s clear that China’s stock rally is catching the attention of investors worldwide. Stay tuned for more updates on this developing trend.
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