Chart of the Day: Northbound Investment Via Stock Connect Surges

Overseas investors have bought a net 60.7 billion yuan ($18 billion) worth of A-shares through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs in January, making it the biggest month for northbound net investment since the first Stock Connect program — linking Hong Kong and Shenzhen markets — launched at the end of 2016.

In February, they bought 60.5 billion yuan of A-shares, data from Hong Kong Exchanges and Clearing Ltd. shows.

Investors’ favorite stock (link in Chinese) is the distiller of one of China's most prestigious liquors — Kweichow Moutai Co. Ltd. — with 12.2 billion yuan of net buying this January through the end of February. Home-appliance makers Gree Electric Appliances Inc. and Midea Group Co. follow with 7.6 billion yuan and 5.6 billion yuan, respectively.

The surge in investment is neither irrational nor a bullish sign for Chinese stocks, said Chen Guo, chief strategist at brokerage Essence Securities (link in Chinese). He attributed the situation to the cooling tensions in the China-U.S. trade war and policies to support capital markets.

In the future, much more money will flow into the A-shares market from outside the Chinese mainland, predicted analysts from China Securities (link in Chinese), one of China’s largest brokerages. They believe that global index giant MSCI Inc.’s decision to increase the weighting of China A-shares in its indexes will arouse foreign investors’ enthusiasm in the country’s equity market.

Contact reporter Gao Baiyu (baiyugao@caixin.com)