Foreign investors upbeat on opportunities in China's capital market

BEIJING, Sept. 27 -- As China maintains its steady economic growth momentum, more foreign institutional investors have quickened the pace of their investments in the Chinese capital market.

In early September, M&G Investments, one of Europe's leading asset managers headquartered in London, announced the launch of the M&G China Fund, aiming to provide investors with access to what it called "one of the world's most compelling markets for long-term stock picking."

The M&G China Fund's investment approach will center on a universe of circa 300 Chinese stocks, the company said in a statement posted on its website.

"In our view, China's stock market capitalization is currently disproportionately small compared to the size of its economy, with many stocks trading at compelling levels of valuation. At the same time, many Chinese companies are showing improving operational resilience during recent tough times and are increasingly focused on maximizing profits and boosting shareholder returns through both higher dividends and share buy-backs," said David Perrett, manager of the M&G China Fund and co-head of the Asia Pacific equity investment team.

"In addition to ongoing corporate self-help, many Chinese businesses are also leaders in globally growing areas such as renewable energy and digital supply chain-management," said Perrett, who has spent more than three decades investing in China.

M&G Investments is not alone in the effort to tap into the Chinese capital market. In late August, Krane Funds Advisors, or KraneShares, a U.S.-based asset management firm known for its global exchange-traded funds (ETFs), launched the KraneShares China Alpha Index (KCAI) ETF at the New York Stock Exchange.

According to a statement released by KraneShares, KCAI's index was developed by the firm's sub-advisor Quant Insight to generate returns in China A-shares through an optimization filtering process combined with AI technology.

China's A-share market is a prime candidate for KraneShares's strategy, the statement quoted Mahmood Noorani, CEO of Quant Insight, as saying.

Like M&G Investments and KraneShares, foreign investors' appetite for buying Chinese assets has been growing, underpinned by their strong confidence in the long-term fundamentals of the Chinese economy.

So far this year, multiple international institutions, including the World Bank and the International Monetary Fund (IMF), have raised their forecast for China's economic growth in 2024.

The World Bank has raised its growth forecast to 4.8 percent, 0.3 percentage points higher than its previous forecast, while the IMF revised up China's growth outlook to 5 percent, increasing by 0.4 percentage points from its previous forecast.

Despite challenges at home and abroad, China's economy grew by 5 percent in the first half of this year.

At a meeting of the Political Bureau of the Communist Party of China Central Committee on Thursday, the leadership stressed effectively implementing existing policies, rolling out incremental policies and making policy measures more targeted and effective, and striving to accomplish the targets and tasks for this year's economic and social development.

The meeting, which analyzed China's current economic situation and made further arrangements for economic work, also called for efforts to boost the capital market and vigorously guide medium and long-term funds to enter the capital market.

Buoyed by the sound fundamentals of China's economy, the number of U.S. dollar-denominated qualified foreign institutional investors, or QFII, has expanded to 841, with 43 foreign investors being granted QFII status this year, according to the latest data from the China Securities Regulatory Commission.

The QFII scheme and its RMB-denominated sibling, RQFII, are designed to allow overseas investors to invest in China's domestic capital markets.

As the number of foreign investors has continued to grow, their holdings of Chinese bonds are also increasing.

Foreign investors' holdings of Chinese bonds in the interbank market increased to 4.5 trillion yuan (about 641.9 billion U.S. dollars) at the end of July, reaching a record high, according to data from the People's Bank of China (PBOC), the country's central bank.

Industry insiders noted that foreign investors' active buy-in of Chinese assets has been facilitated by the country's continuous opening-up measures in the capital market over the years, and the encouraging institutional arrangements are still gaining steam.

Since Aug. 26, the PBOC and the State Administration of Foreign Exchange have started to implement revised rules for the QFII and RQFII.

With the aim to steadily expand the opening-up of the financial sector, key revisions include simplifying business registration procedures, and optimizing the management of accounts and cross-border fund flows.

As Chinese authorities have repeatedly pledged to advance the opening-up in the capital market to a higher level, analysts said more overseas investors are expected to be attracted to invest in the market.

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