May 12, 2020 09:52 PM

In Depth: Overseas Investors Sold Down A-Shares in the First Quarter as Coronavirus Hit

China’s stock markets may have escaped the worst of the coronavirus-induced roller coaster ride experienced by their overseas counterparts in the first quarter, but it was still a challenge for investors as they scrambled to protect their money in the face of slumping equity prices.

Data analyzed by Caixin show that as a whole overseas investors were cautious in the first three months of the year, pulling money from the Chinese markets and adjusting their portfolios to increase exposure to sectors with the best prospects of weathering the fallout from the Covid-19 outbreak.

Overseas institutions are a small but growing class of investors in China’s stock markets, accounting for just 4.15% of listed equities in terms of market value at the end of March. The total combined market value of the Shanghai and Shenzhen A-share markets was 45.58 trillion yuan ($6.43 trillion). Mutual funds held 2.54 trillion yuan, accounting for 5.57% of the total market value.

Investment charts-1

As of the end of March, holdings of overseas investors in the Shanghai and Shenzhen yuan-denominated A-share markets stood at about 1.89 trillion yuan, down from 2.1 trillion yuan at the end of February, according to data (link in Chinese) from the People’s Bank of China, the central bank. First-quarter earnings reports of listed companies analyzed by Caixin show that Qualified Foreign Institutional Investor (QFII) program investors reduced their holdings in 70 companies and increased them in 54 companies.

“In the long run, the current allocation ratio of overseas capital to A-shares is still low, and there is plenty of room to increase holdings in the future as the internationalization of the A-share market continues to advance,” Fan Jinsong, an analyst at Zhongtai Securities Co. Ltd., wrote in a research note. “The allocation of overseas capital to emerging markets will not be terminated by the impact of a one-off event. We believe that after the epidemic is out of our face and the global market becomes stable, the A-share market is expected to see more allocation from overseas capital as a haven offering stocks at low valuations and with stable growth.”

He said overseas investors preferred stocks with low valuations, high profits, large market capitalization and high dividends.

Cooling Interest

Overseas investors mainly participate in the A-share markets through the Shanghai and Shenzhen Stock Connect initiatives as well as the QFII program. At the end of the first quarter, their holdings in A-shares totaled 1.3 trillion yuan through Stock Connect. Through the QFII program, overseas institutions identified as among the top 10 shareholders in 400 listed companies owned stock valued at 154.6 billion yuan and a further 430 billion yuan through holdings that are too small to require disclosure.

Investment charts-2

French investment bank Société Générale SA bought shares in 53 companies in the first quarter, the most of any QFII investor and ranked among the top 10 largest shareholders of 77 companies, mostly those with a small market capitalization, and the total value of its investments in the 77 companies amounted to 979 million yuan.

U.S. investment bank JPMorgan Chase & Co. saw the biggest reduction in its holdings through the QFII program. It dropped off the list of the top 10 largest shareholders of 13 companies, shedding stocks with a market value of about 630 million yuan. The Abu Dhabi Investment Authority, a sovereign wealth fund owned by the Emirate of Abu Dhabi in the United Arab Emirates, disappeared from the list of the 10 largest shareholders of nine companies.

In terms of changes in the market value of holdings, the Central Bank of Malaysia reduced its holdings the most in the first quarter, falling by about 2.6 billion yuan, followed by Merrill Lynch International, a unit of Bank of America Corp., and ING Bank, a unit of Dutch financial services conglomerate ING Group NV, who each reduced their stock holdings by more than 2 billion yuan.

China’s domestic mutual funds were more bullish in the first quarter than overseas investors, with the absolute value of their holdings hitting a record 2.54 trillion yuan at the end of March, topping the previous high of 2.4 trillion yuan recorded at the end of the third quarter of 2007. Even so, in terms of market share, they were still languishing at 5.57%, just above their all-time low of 3.87% recorded at the end of the fourth quarter of 2017, but still well down on the 27.93% share seen at the end of the third quarter of 2007.

As the Covid-19 epidemic hit the Chinese economy in the first quarter, mutual funds moved to reshape their portfolios, giving more weight to sectors seen to either be resilient amid the economic downturn or to benefit from the epidemic, analysts at Guosheng Securities Co. Ltd. wrote in a research note. They included pharmaceuticals, biotechnology, computing, agriculture, forestry, animal husbandry, fisheries, media and communications. On the flip side, they reduced their holdings in sectors such as nonbanking financials, banking, household appliances, electronics and real estate — all seen as being hit by the slump in consumer spending.

Market pick-up

Overseas investors also bet on pharmaceuticals, biotechnology, food and beverages and increased their exposure to agriculture, forestry, animal husbandry and fishery sectors.

China’s benchmark stock gauge, the Shanghai Composite Index, fell to a 13-month low of 2,660.17 on March 23 as the economy slumped amid the lockdown imposed by the government to stop the spread of the coronavirus. But it has since picked up on expectations that the government will intensify monetary and fiscal support for the economy to ensure its recovery from the outbreak. The index closed Tuesday at 2,891.56, 8.7% higher than the March low.

Overseas capital has also begun to flow back into the A-share market as investors see China as something of a safe haven amid the volatility that’s hit other developed and emerging markets as their economies slump. According to China Merchants Securities, the market value of mainland shares held by overseas investors through Stock Connect reached 1.45 trillion yuan at the end of April, up 151.4 billion yuan from the end of March.

Contact reporter Timmy Shen ( and editor Nerys Avery (

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