Investors bought Chinese stocks, despite regulatory concerns

Investors watch the stock market in a securities hall in Fuyang City, Anhui Province, China, December 31, 2020.

Cost photo | Barcroft Media | Getty Images

BEIJING – Investors bought Chinese stocks last week, despite growing concerns about tight regulation, according to fund research firm EPFR Global.

A slew of new Chinese regulations in the month since US-listed domestic ride-hailing giant Didi slipped Hong Kong, mainland and US-listed Chinese stocks. The sell-off accelerated last week after a policy specifically banned after-school tutoring companies from having foreign investors.

However, according to Cameron Brandt, Research Director at EPFR, investors, especially institutions, took the opportunity to buy Chinese stocks.

Funds focused on Chinese stocks saw net inflows of $ 3.6 billion in the week ended Wednesday, of which $ 300 million went to Chinese technology funds, Brandt said in an interview on Friday.

EPFR is a subsidiary of Informa Financial Intelligence and claims to track over 134,000 traditional and alternative funds with total assets of more than $ 49.5 trillion.

The Chinese authorities have tried to calm the markets. Late Wednesday, at a virtual meeting with major investment banks, the securities commission said China would not ban its companies from listing in the United States unless there were national security concerns, a source familiar with the matter told CNBC.

China vs. US flows

Another sign of continued investor interest in China was that stocks saw far more inflows than US stocks relative to the total amount of money invested in the two stock categories, EPFR data showed.

Inflows into U.S. equity funds started the week at about 0.1% of assets under management, up from just over 1% for Chinese, Brandt said.

“Basically, the inflows into US equity funds were essentially a tenth of what flowed into China funds,” he said.

But a week doesn’t make a trend, and Brandt found that markets are increasingly being driven by multiple ideas rather than a single narrative.

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The Hang Seng Index and the Shanghai Composite have fallen more than 4% in the past five trading days. The KraneShares CSI Index China ETF (KWEB), a US-listed fund for tracking Chinese technology stocks, has fallen by around 14.5% during this period.

“While we still believe that the regulatory environment will remain tight overall this year, we believe the recent sell-off offers a good entry point for long-term investors,” Nomura analysts Jialong Shi and Thomas Shen said in a report on Thursday .

“We believe the Internet industry is resilient and adaptable enough to navigate the current regulatory storm safely and healthily,” they said, “second quarter results.

The top analyst picks in the Chinese internet sector are NetEase, Weibo, JD, Joyy, Alibaba and Tencent.

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