Foreign capital to chase A shares

Bright economic data, rising realty prices and dovish Fed whet risk appetite of investors

Overseas investors' risk appetite for China's A shares has increased, which will likely continue to attract foreign capital to the Chinese stock markets, analysts say.

They say key economic data has proved better than expected, property prices are up, and the US Federal Reserve has kept a dovish stance on its monetary policy.

The benchmark Shanghai Composite Index rebounded 12 percent in March, as this year's economic data buoyed investor sentiment.

"Over the past two weeks, global investors' interest in the A-share market has shown signs of improvement," Gao Ting, head of China strategy at UBS Securities, says in a research note. "Several large overseas exchange-traded funds that track the A-share indices saw net subscriptions."

Gao cites the rebound in manufacturing activity, which expanded in March against the contraction in February. Also, industrial profits in March after the losses in January and February are evidence of improvement in the economy in the first quarter, Gao says.

Northbound trading under the Shanghai-Hong Kong stock connect has seen net purchases of 18.1 billion yuan ($2.79 billion; 2.45 billion euros) since March. Shares of brokerages and banks are among the northbound funds' most-bought stocks, according to UBS Securities.

Matthew Sutherland, senior investment director for equities at global asset management company Fidelity International, says while the Chinese economy is decelerating, the new economy - particularly sectors related to consumer and information technology - will continue to offer good investment opportunities for foreign investors.

"As low-value-add businesses move away, China is acquiring the tools required to compete throughout the entire production chain, including upmarket technologies and high-level skills," he says.

According to a Fidelity survey, 36 percent of its 200 equity and fixed-income analysts worldwide predict China's slowdown will have no, or a somewhat positive, impact on companies' strategic investment plans.

Breaking out European analysts, the survey says some believe China's slowdown will not have any impact on the stocks they cover.

As for investors, they are motivated by the likelihood of China's A shares being included in the MSCI emerging markets index.

MSCI Inc, the global index provider, is in June due to announce its decision on whether or not to include A shares in its emerging markets index. Any inclusion would initially attract an estimated $20 billion in investment to the A-share market, analysts say.

The company postponed the decision last year, citing market barriers to foreign investors in China. However, it resumed a review this month and started soliciting opinions from international institutional investors.

Analysts say that, compared with last year, there is a better chance this year for A shares to be included in the MSCI index.

"If A shares are included, the long-term positive implication will be more far-reaching than the short-term benefits of potential capital inflows, as A shares would attract stronger interest from global investors," Gao at UBS Securities says.

lixiang@chinadaily.com.cn