2023 A major shift in Asian capital flows, with China’s temperature falling and Southeast Asian countries rising. International capital fled China at an accelerated pace at the end of last year, while Southeast Asian countries have become a new hotspot favored by big international investment banks as the momentum of active corporate IPOs and financing overshadowed their Chinese counterparts.
Reuters reported on Wednesday (January 3) that analysts at U.S. investment bank Morgan Stanley said global long funds sold off Chinese stocks in a big way in December 2023, with the speed of the sell-off the fastest of the year. The reason for their hasty sell-off was to meet redemption requirements and diversify their investments away from China, the world’s second-largest economy.
Long fund managers in China and Hong Kong stocks dumped a net total of $3.8 billion in Chinese equities last month, the worst month in 2023 and the third-largest single-month outflow on record, Morgan Stanley’s quantitative research team said in a report to clients on Tuesday.
Reuters quoted Morgan Stanley analysts as saying, “Investors cashing out of equity funds and portfolio managers making investment adjustments to further reduce their holdings of Chinese securities were the two factors that contributed to the outflow.”
Morgan Stanley said $2 billion of the $3.8 billion in December outflows came from redemption operations by fund investors, with the remainder coming from operations by fund managers to rebalance their China exposure.
China and Hong Kong stock markets are among the worst performers among the world’s major stock indices in 2023, with geopolitical risks, continued weak economic recovery and policy uncertainty the main drags on both markets.
China’s blue-chip index, the CSI 300, sank 11% in 2023, while Hong Kong’s Hang Seng Index fell 14%.
Beijing has rolled out a series of stimulus measures in recent months in an effort to strengthen the economic recovery, but analysts generally agree that they have not been enough to restore market confidence.
European fund managers are picking up the pace to catch up with their U.S. counterparts by reducing their holdings of Chinese stocks to roughly the same proportion, Morgan Stanley said.
The stocks at the top of the list of stocks that investors added to their holdings were Tencent, Alibaba, Moutai and NetEase, while shares of companies such as Jingdong Mall, Parkson China and AIA topped the list of the biggest sellers, according to Morgan Stanley’s data.
Long and short equity funds appeared to see room for Chinese stocks to add value in December compared with long-trading funds globally. The UBS brokerage team said hedge funds took a big bite out of Chinese stocks in the final weeks of 2023 because they were betting that Beijing could roll out more stimulus than expected and were buying low to do so.
Separately, Japanese media outlet Nikkei Asia reported on Wednesday that international investment has changed significantly in 2023 due to China’s economic downturn. The amount of advisory fees charged by major international investment firms for bond and stock offerings to Southeast Asian clients exceeds the fees they receive from China in relation to them. This is the first time since 2008.
Last year, big international investment banks, including JPMorgan Chase and Citi, charged a total of $892 million in advisory fees for equity and bond offerings in Southeast Asian countries, while similar fees from Chinese clients totaled $854 million, the report said.
This is a huge contrast to the situation in 2020, when China paid related fees totaling $3.83 billion, compared with $964 million in Southeast Asian countries.
Part of the reason for this change is that the IPO markets in Indonesia and India are quite red-hot, while the demand for Chinese companies to list on the U.S. stock market is much lower, Nikkei Asia said. Regulatory authorities in Beijing have continued to take tougher measures to restrict their companies from listing overseas, citing the need to protect national security.
