Overseas investors bullish on China's capital market

BEIJING - As China opens up its financial market to the world, global investors are increasingly adding Chinese stocks into their portfolio.

The total value of domestic stocks held by overseas entities hit 1.02 trillion yuan ($154 billion) at the end of September, up from 700 billion yuan at the end of January this year, central bank data showed.

Foreign investors mainly bought Chinese shares through the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect programs, which together saw foreign funds inflows of 326.3 billion yuan at the end of October.

Investor interest in the domestic A-share market was particularly strong recently, evidenced by a surge in daily inflows of "northbound fund," or money invested from Hong Kong into the Chinese mainland, which has averaged 1.6 billion yuan since mid-October, higher than 900 million yuan since the beginning of this year.

Financial stocks and those in the consumer products industry were among the favorite picks among many foreign investors. Those invested via the Qualified Foreign Institutional Investor (QFII) program mainly chose to bet on bluechips in these industries, such as Bank of Beijing and liquor maker Kweichow Moutai.

According to Gao Ting, an analyst with UBS, overseas investors tend to overweight Chinese consumer products stocks in their portfolio, and will likely increase their holdings after the inclusion of A-shares by global index provider MSCI.

Starting June next year, MSCI will include some China A-shares in its emerging markets index on a gradual basis.

Since the announcement of the decision in June, applications to open accounts through the stock connect programs have surged, with increasing number of active investors in the market, Nomura Securities noted.

The inclusion will bring about $15 billion to $20 billion into the Chinese capital market next year, estimated Wang Hanfeng, an analyst with China International Capital Corporation.

The growing interest from overseas investors was also driven by confidence in China's economic fundamentals, analysts said.

China's economy continued steady expansion in the first three quarters, with growth at 6.9 percent year-on-year, above the government target of 6.5 percent for 2017.

"We are quite bullish on China's economy in the long run. While the GDP number may not be as strong, we see great investment potential in technological innovation, globalization and increased profitability of firms." said Shi Bin with UBS Asset Management.

"Once we find good investment targets, we'll hold our position for the long-term. We don't sell shares just because it went up 10 percent," Shi said.

China's stock market has been recovering steadily this year after market turmoil starting from the summer of 2015 once sent the major index below 3,000 points.

The benchmark Shanghai Composite Index closed 0.14 percent higher Friday, at 3,432.67 points, the fifth straight day of rise.

As more favorable conditions have emerged, it is high time for China's capital market to open even wider, Wu Qing, chairman of the Shanghai Stock Exchange,told Xinhua.

The exchange has initiated a research program to study the possibility of a Shanghai-London stock connect, Wu said.

"We've been actively participating in international rule-making and international governance of stock exchanges under the mechanism of World Federation of Exchanges. Our work has gained international recognition," Wu said.