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Foreign investors remain bullish on opportunities presented by China's strong economic recovery

Updated: February 3, 2023 Source: Belt and Road Portal
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This aerial photo taken on Jan. 13, 2023 shows a view of the container terminal of Haikou Port in Haikou, south China's Hainan Province. (Xinhua/Pu Xiaoxu)

Foreign investors have expressed their confidence in China's economy. In their forecasts of China's economic outlook in 2023, most foreign institutions agree that the optimization of epidemic prevention and control measures will unleash consumption potential and China's economy will take the lead in the recovery in 2023, further highlighting the advantages of renminbi assets in global asset allocation.

"We have long-term confidence in the Chinese market, and investing in China is not an alternative, but a necessity," said Qian Yujun, president of United Bank of Switzerland (UBS) China and chairman of UBS Securities.

-- Foreign investors accelerate allocation of Chinese assets

In around the first three weeks of trading after the start of 2023, foreign investors are deploying Chinese assets at a record speed, from A-shares, Hong Kong stocks to the foreign exchange market.

Since January 2023, the cumulative net purchase of northbound capital amounted to 131.146 billion yuan, setting a new high for net purchase in a single month. It also exceeded the total net purchase for the whole year of 2022 (90.02 billion yuan).

For Hong Kong stocks, the Hang Seng Index has rallied more than 50 percent since the stage bottom in November 2022. Foreign investors are actively purchasing Hong Kong stocks, and the underweight of Asian investors' positions in Chinese stocks at the end of last year has shrunk significantly, said Herald van der Linde, head of Asia Pacific at HSBC Securities Strategy.

A similarly strong rally was seen in the renminbi exchange rate. During the first 14 trading days of 2023, the cumulative appreciation  of onshore renminbi reached 1,774 basis points, or 2.55 percent.

According to Shenwan Hongyuan Securities, the significant return of northbound capital flows since 2023 and the appreciation of the renminbi have occurred simultaneously, indicating that foreign investors have a high degree of recognition of China's post-epidemic recovery.

-- Foreign investors accelerate their "Gold Rush" in China

In addition to purchasing Chinese assets, foreign investors are also accelerating their presence in China's increasingly open financial market.

Before the Chinese New Year holiday in 2023, China Securities Regulatory Commission (CSRC) approved the application for the establishment of Standard Chartered Securities, the first wholly foreign-owned securities company newly established in 2023. Before the establishment of Standard Chartered Securities, two securities companies had already changed from foreign equity participation to wholly foreign-owned, namely Goldman Sachs & Co. and J.P. Morgan Securities.

In addition, there are another seven foreign-owned securities companies operating in China, including UBS Securities, Credit Suisse Securities and Morgan Stanley Securities.

The Chinese public equity industry ia also favored by foreign investors. Nearly a month into 2023, China's financial market welcomed two wholly foreign-owned public fund firms.

Since the official lifting of foreign ownership restrictions on securities companies and public fund companies in April 2020, foreign investors have entered the Chinese market and actively promoted the establishment of their businesses in China.

According to the industry insiders, China's capital market is attractive to international investors, and foreign giants are investing in China due to their optimism about the Chinese market, which will also bring professional and diversified investment strategies and management models to domestic investors.

-- Foreign institutions bullish on China's economic prospects

Since November 2022, China's domestic economic recovery is expected to continue to strengthen with the optimization and adjustment of domestic epidemic prevention and control policies, and the accelerated implementation of policies on expanding domestic demand and stabilizing growth.

Foreign investors generally believe that China will take the lead in economic recovery in 2023.

China's GDP growth is expected to reach around 5.7 percent in 2023, according to Xing Ziqiang, the chief economist at Morgan Stanley China, who added that China's domestic consumption is expected to recover gradually.

Laura Wang, chief market strategist at Morgan Stanley, believes that the rating on Chinese equities will change from "Standard" to "Overweight" in 2023. This is also the official positive attitude of the agency towards China's equity market after nearly two years.

Lian Peikun, director of China research at UBS Securities, said that the recovery of consumption in China is expected to drive an overall recovery in corporate earnings. At the same time, the world's developed economies will generally face a recession in 2023, which will affect the earnings growth of companies in overseas markets, while the attractiveness of the Chinese market will be further enhanced. 

Editor: Li Shimeng