Foreign investors become net sellers of Chinese stocks in March

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Foreign investors have been big sellers of Chinese equities this month as a rise in COVID-19 cases on the mainland and possible retaliation for China’s ties with Russia cloud the market outlook.

The risk of possible delisting of Chinese companies from US stock exchanges has also prompted the sale of their overseas listed shares.

The selloff drove Chinese stocks to their lowest level in 21 months, with the Hong Kong stock market hitting its lowest level in 2008 this week, forcing Chinese policymakers to step in with assurances of support and stability measures. .

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Refinitiv data shows foreigners sold $10.18 billion worth of mainland stocks this month through Stock Connect, a key cross-border link between mainland and Hong Kong stock exchanges.

The last time Chinese stocks saw a net selloff was in September 2020, when foreigners sold $4.8 billion.

Foreign investors bought $3.27 billion in the first two months of this year, the data showed.

A major reason for the slump in Chinese stocks this month has been the rapid spread of the coronavirus, which has fueled concerns about consumer spending and business operations.

The Russian-Ukrainian conflict has also touched the continent’s shares, reigniting concerns about widening differences between Beijing and Washington as the United States worries about China’s alignment with Russia.

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Chinese large- and mid-cap stocks have fallen 15% this year, making China’s stock markets the worst performer in the world after Russia.

Data from Refinitiv IBES shows that analysts have cut corporate earnings estimates for the MSCI China index by 0.5% since the start of this month. At the start of the year, they expected corporate profits to grow 14.4% in 2022.

Sat Duhra, portfolio manager at Janus Henderson Investors, said those earnings expectations were high and there would be more cuts.

“When you see the Chinese consumer start to weaken – lockdowns or whatever – then you start to see more earnings cuts happening, and that will always be negative for stocks,” Duhra said.

However, the fall in stocks has made stocks cheaper.

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The data shows the 12-month price-to-earnings ratio for Chinese stocks at 8.98, the lowest among major Asian markets.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said he remained positive on China, despite steep losses and expectations of greater volatility in the coming weeks.

“We maintain our preference for cyclical and value sectors, in particular the energy sector,” he said. “We like metals and mining, construction materials and renewable energy operators. And we think food and beverage names with resilient earnings could find support amid the volatility.

(Reporting by Patturaja Murugaboopathy, Gaurav Dogra in Bangalore, Jason Xue in Shanghai and Kevin Buckland in Tokyo; Editing by Vidya Ranganathan and Clarence Fernandez)

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