Analysis: Foreigners' dry powder is fuel for a long stock market rally in China

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Foreign investors have barely begun buying back beaten-down stocks in China, but there are growing signs that the end of the country's tough COVID-zero policy marks the beginning of a long global march back into Chinese equities.

But participation has been narrow, with brokers and analytics firms attributing most of the gains to short-covering and fast-money -- leaving lots of room for flows from slower-moving institutional investors to drive the rally further.

J.P. Morgan Asset Management is in the process of raising allocations to Chinese equities as the government's dismantling of COVID restrictions puts the economy on a recovery path, while in developed markets like the United States, policies remain tight as central banks try to curb inflation, said Sylvia Sheng, global multi-asset strategist based in Hong Kong.

Foreign investors bought a net 41 billion yuan of China stocks via the China-Hong Kong Stock Connect Scheme so far this year, compared with 90 billion yuan of China stocks bought in all of 2022. They bought a net 35 billion yuan of China stocks in December.

To be sure, there is caution, hesitancy and less consensus about when and where to invest than a few years ago when investors were piling in to China's internet giants, she said. But the widely accepted view of a few short months ago, in October, that Xi Jinping's new leadership team of loyalists signaled the sacrifice of growth for ideologically-driven policies, has been shaken by the abrupt u-turn on lockdowns.

 

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China’s market may go up in the short term - but the long term out look for China’s economy is bearish. Their demography was ruined by the one child policy, and globalization is reversing. Westerners won’t need to import cheap goods if it has robots and AI.

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