Investors pour more money in U.S. stocks vs China: EPFR fund flow data

BEIJING – According to fund research firm EPFR Global, investors are investing billions of dollars more in US equity funds than in Chinese ones.

“The baton seems to be handed over,” said Cameron Brandt, director of research at EPFR, in an interview on Friday. “Many investors believe that the short-term game is taking place in the US, where momentum is picking up, compared to China, where there are signals that a more prudent stance will be adopted, especially in the second half of the year.”

U.S. stocks fell in March 2020 as concerns over the impact of the coronavirus pandemic on economic growth gripped markets. At that point, China was on its way to controlling the spread of the virus domestically, and the economy returned to growth in the second quarter.

Now, about a year later, global investors are rethinking their prospects for both countries.

Interest in US and Chinese funds is growing

In a global context, US and China equity funds are the two regions that have attracted the most inflows from international investors over the past two quarters, Brandt said.

“Both groups of funds have seen a significant increase in interest since the middle of last year,” he said. “China funds got the first jump, but the US came back.”

The cumulative net flows to U.S. equity funds since early 2020 were negative through November, according to the EPFR. The flows turned positive in the weeks following the U.S. presidential election, reaching $ 170 billion in the week ended April 7.

In contrast, Chinese equity funds saw positive cumulative net flows that were above US levels for much of the past year – through December. Cumulative net inflows into Chinese equity funds were only $ 29.78 billion for the week ended April 7, according to EPFR.

The data company is a subsidiary of Informa Financial Intelligence and claims to track over 100,100 mutual funds worldwide, with total assets of more than $ 34 trillion.

It’s not over for China’s tributaries

While US stocks have soared to new records this year, the Shanghai Verbund has hardly changed since December. Millions of new investors have moved to the mainland over the past year as local stocks soar and concerns about excessive speculation.

In the past few weeks, the Chinese authorities have repeatedly warned of financial market risks.

According to analysts, Beijing’s 6% GDP growth target for the year and other economic indicators are signaling that policymakers are looking to address long-term issues such as high dependency on debt rather than rapid growth.

“We’ve seen the inflows into Chinese funds decline lately,” Brandt said. “It seems that there is some skepticism, although the headline growth numbers seem pretty impressive compared to any other country. China is still seen as vulnerable if monetary conditions tighten before the end of the year.”

Nonetheless, he believes funds will continue to buy Chinese assets since the middle of last year, given the strong demand from retail investors.

History shows that it would take an extreme event to diminish retail interest. Brandt said the last time retail buying spiked that much didn’t end until the mainland China stock market crashed in 2015.

The Chinese government also wants to encourage investor participation in the local stock market by making it easier for companies to go public and by encouraging foreign institutions to invest.

– CNBC’s Yen Nee Lee contributed to this report.

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