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Chinese equity flows turn positive as Beijing signals support

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Equity purchases by Chinese banks and brokers’ international arms have helped push net flows to the country’s stock market in to positive territory for the first time this year, a shift that helps Beijing in its battle to shore up flagging investor confidence.

A Financial Times analysis of data from Hong Kong’s stock connect investment programme shows weekly net inflows of Rmb16.1bn ($2.4bn) in to mainland Chinese bourses as of the market’s close on Thursday.

That was enough to take “northbound” net buying of shares traded in Shanghai and Shenzhen to Rmb8.9bn for the year to date, as China heads into the long lunar new year holiday, which begins on Friday.

Some market participants also believe that state-backed institutions were behind some of the purchases after a signal of official support, which has helped push up buying of mainland-listed equities markedly.

“A lot [of the buying] is from offshore state funds,” said a trading desk head at one Chinese investment bank in Hong Kong. “There’s also a bit of foreign long only [investors] and hedge funds, but they’re all linked by the support announcement.”

However, traders and analysts said the inflows also reflected a surge in buying by the offshore arms of state-linked financial institutions, rather than the return of foreign investors.

“I’m seeing more northbound buying from Chinese institutional investors,” said Dickie Wong, head of research at Kingston Securities.

The rise in purchases coincides with a weekly gain of almost 6 per cent for the CSI 300 index of Shanghai- and Shenzhen-listed stocks, leaving the equity benchmark down just 2 per cent this year.

However, the index is still down more than 43 per cent from a peak in February of 2021. The sell-off has been driven by a lack of confidence in the outlook for the world’s second-largest economy and an ongoing liquidity crisis in the country’s real estate sector, which has weighed on domestic consumption.

The trading desk head said the sudden removal of the head of the China Securities Regulatory Commission — which analysts said was likely to be due to the market’s fall over the past six months — “shows Beijing has an acute awareness of how deep the problem is”.

As part of the drive to support the market, China’s securities regulator on Tuesday barred lending and short selling and vowed to stop what it called “illegal behaviour” that hindered normal market operations.

Kingston’s Wong said he expected China’s central bank to lower interest rates again after the lunar new year holiday, which will keep mainland markets closed until February 19. “But if after that there’s no further policy action, the market could fall back.”

Frank Benzimra, head of Asia equity strategy at Société Générale, said recent gains by Chinese equities had spurred some interest from some European institutional investor clients.

“From a technical point of view yes, we could see some rebound, especially with the numerous financial initiatives from policymakers to restore some kind of confidence in the market,” Benzimra said. “But that doesn’t address the underlying issue of the economy.”

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