2023 has been a year of financial retreat for foreign investors in the Chinese stock market, with inflows hitting their lowest levels since 2015. A Financial Times analysis, based on data from Hong Kong’s Stock Connect, reveals a staggering 87% decline in net foreign investment in Chinese shares this year. From a peak of 235 billion yuan in August, investment has dwindled to a mere 30.7 billion yuan, equivalent to about $29 billion being withdrawn from China-listed stocks in 2023 alone.
This mass exodus of foreign capital can be attributed to growing concerns over China’s economic health. The nation has struggled to maintain momentum in its recovery from stringent zero-COVID policies, grappling with a faltering real estate sector, mounting debts, and diminishing consumer demand. The tipping point for many investors came in August with the financial woes of Country Garden, one of China’s leading developers, which missed crucial bond payments, highlighting the depth of the property crisis. Since that revelation, a consistent outflow of foreign investment has been observed.
Comparatively, the MSCI China index, which tracks Chinese stocks, has seen a 14% decline this year. This downturn starkly contrasts with the growth trajectories of US stocks and other emerging markets like India and South Korea. In just the past month, as the S&P 500 rose by 4.7%, the CSI 300, China’s benchmark index, experienced a decline of over 3%.
Adding to the woes of the Chinese stock market is the apprehension among investors regarding Beijing’s hesitation to implement robust economic stimulus measures, coupled with ongoing crackdowns on various business sectors. This sentiment was further fueled on Friday when the Chinese government announced more stringent regulations on the gaming industry, resulting in a significant sell-off in stocks of major players like Tencent, NetEase, and Bilibili.
As 2023 draws to a close, with only a couple of trading days left, the Chinese markets are poised to end the year on a subdued note. This year’s dramatic decrease in offshore investments is set to mark the smallest influx of foreign capital since the inception of the Stock Connect program in 2015, a clear indication of waning investor confidence in China’s market potential amidst its current economic challenges.