Charts of the Day: Overseas Mutual Funds Ride the High in China Stocks

Major overseas mutual funds sunk more money into China stocks in the second quarter, a recent report showed, highlighting the strong performance of the country’s equities.

In the second quarter, 20 major overseas fund companies’ holdings of Chinese companies’ A-shares, H-shares, and stocks listed in the U.S grew by 21.6% from the previous quarter to $486 billion, according to a report released Thursday by Citic Securities Co. Ltd. The 20 firms held the most China stocks by value among overseas mutual fund companies.

Excluding changes in share prices, the firms invested more in the stocks of Shanghai-listed Kweichow Moutai Co. Ltd., and Hong Kong-listed Meituan Dianping, Alibaba Group Holding Ltd. and Wuxi Biologics Cayman Inc., Citic Securities analysts said in the report.

The analysts said that the increase in holdings was mainly due to the strong performance of Chinese stocks last quarter.

Top fund managers such as JPMorgan Chase & Co., BlackRock Inc., Vanguard Group Inc. and The Capital Group Companies Inc. boosted their holdings in Chinese stocks by 18.4%, 17.5%, 16.5% and 29.2%, respectively, from the previous quarter, according to the report. In the second quarter, they remained the four companies that held the most Chinese stocks by value.

Among Chinese stocks, overseas mutual funds preferred those in the nonessential consumption, communication and financial industries.

Major overseas funds’ holdings of A-shares grew by 0.6 percentage points quarter-on-quarter to 4% in the second quarter, the report showed, while they still primarily held H-shares and stocks of U.S.-listed Chinese companies.

China has been making efforts to make its financial markets more accessible for overseas investors. Authorities in June officially scrapped quota restrictions on two major inbound investment systems — the Qualified Foreign Institutional Investor program and the RMB Qualified Foreign Institutional Investor program, better known as QFII and RQFII — following months of preparation after the initial pledge was made in September 2019.

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Hong Kong’s bourse operator in July responded to calls from international investors in China’s stock markets for more hedging and derivatives tools to manage their risks, and listed its first A-share leveraged and inverse products tracking the CSI 300 Index, a benchmark index comprising the 300 largest and most liquid A-share stocks.

China is also moving to unify its fragmented $15.4 trillion bond market, the world’s second-largest, trying to make the market more attractive to overseas investors. In July, Chinese regulators announced that qualified investors on the interbank market and on the Shanghai and Shenzhen stock exchanges will be able to buy and sell bonds listed on both markets through a “connect” mechanism.

In July, overseas investors flocked to China’s bond market, making record net purchases of onshore bonds and marking the 20th consecutive month of net purchases.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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