Foreign Capital "Backyard Fire" Reduced A Share Rescue Field Northward Capital Turned To Net Outflow During The Year

As for the continuous outflow of capital in the A-share market, the market has been used for quite a while. But in the evening of March 17th, the reversal of a landmark data triggered the market's discussion on the trend of capital going northward and the overall allocation of foreign capital in A shares. A

In the past 20 trading days, north capital continued outflow, after the closing of March 17th, the total net inflow of northern capital in 2020 turned to zero and became net outflow. In addition, since the opening of Shanghai Shenzhen port, the cumulative net inflow of north capital has exceeded one trillion yuan, but after a recent period of outflow of funds, the total net inflow of north capital has also fallen off the trillion yuan mark with symbolic significance.

As of the closing of March 18th, the net outflow of north capital remained unchanged. The net outflow of funds on that day was close to 7 billion yuan, and in 2020, the net outflow of funds in North China totaled more than 10 billion yuan.

Since the opening of Shanghai and Shenzhen port, with the advance of the internationalization of A shares, the north capital has gradually established the trend of adding A shares, and the data level can also reflect such changes. Over the past few years, there has been a large net inflow of funds on the whole data.

Now, if the external market continues to plummet due to the impact of the new crown pneumonia epidemic, will it change the momentum of foreign capital plus A shares?

Foreign capital "backyard fire"

In fact, some market participants are doubtful about the recent large-scale outflow of foreign capital. Because from the two aspects of epidemic prevention and control and stability of the stock market, A shares are looking at safer markets all over the world. So is the withdrawal of foreign capital seeing different risk points?

From the data level, according to the statistics of CICC statistics, before the end of February, China "epidemic", but overseas capital continued to flow into A shares. In January, the average daily net inflow reached 2 billion 400 million yuan. Before February 21st, the average daily net inflow reached 2 billion 700 million yuan in February, but the net outflow from February 22nd to today reached 4 billion 700 million yuan. In particular, the recent outflow has accelerated significantly, with a daily net outflow of 10 billion 100 million yuan since March 11th.

A number of market participants interviewed by reporters said that the core factor of the withdrawal of foreign capital was to cope with the liquidity pressure of overseas markets, that is, the backyard fire, so that they had to sell overseas A through selling good liquidity of the A-share assets.

In response, Zhang Qiyao, a strategist at Guosheng securities, pointed out: "there seems to be no signs of easing up in the external market turbulence, and under the violent fluctuations of asset prices, financial market liquidity has shown signs of crisis. The lack of liquidity in the financial market has led to the discovery of the gold shortage and brought all kinds of asset selling including hedge assets (gold). For foreign investors holding A shares, they also face similar pressure of reduction.

At the same time, considering the characteristics of the product level, Zhang Qiyao also believes that due to the fact that there are a lot of top-down tactical allocation funds and index tracking funds in international funds, the allocation of foreign capital to the A share market is bound to be affected by the external environment. In most emerging markets, when risk appetite falls across the board and the related fund products are substantially redeemed, asset sell-off will also happen in the A share market.

A Hongkong asset management organization also revealed: "foreign investment in A shares is not based on the judgement of the market, more investment strategy and the adjustment of the share position of the products according to the proportion of the positions set up. In recent years, the European and American markets have plummeted, and many foreign products have sold A shares passively and follow the same pattern, feeding the overseas market and balancing the gap."

Wang Hanfeng, chief strategist of CICC, also believes that the volatility of overseas markets is close to the extreme level of history. Overseas institutions are facing redemption pressure, resulting in capital outflow of A shares.

It is worth noting that Wang Hanfeng also suggested that every time the volatility of overseas markets was caused by emerging markets or developed markets, capital would normally withdraw from the relatively high-risk equity market, such as emerging markets, including China. During the recent 20 years of large market fluctuations, the total net capital outflow accounted for 2%-6.5% of net asset management scale. Between.

Xie Yaxuan, chief macroeconomic analyst at China Merchants Securities Research and development center, said that why foreign investors do not buy Chinese assets can not only look at the domestic situation, but also combine the macro situation of foreign countries to make judgments.

Xie Yaxuan believes that international investors do not buy Chinese assets in the short term, but sell Chinese assets. A more important reason is that stock assets are risk assets after all. The current epidemic and the sharp fluctuations in oil prices in Europe and America are the main reasons why foreign capital has to withdraw from China's stock market and throw out Chinese assets. From the recent market trend, the yen and the euro rose by 2.86% and 1.49% respectively against the US dollar, indicating that the conversion of funds from the US dollar to the yen and the euro, but the index of the main European countries and Japan's stock market did not rise due to the inflow of funds. A bigger possibility is that these funds will flow into the bond markets of the countries concerned and buy risky assets such as treasury bonds.

Phased evacuation only

Despite the fact that the data in the north capital year showed a net outflow in 2020, the reporter interviewed a number of market participants to realize that the market reached a unified consensus on the long term addition of A shares to foreign investment. It is considered that the partial withdrawal of A shares is only a short-term short-term behavior.

Based on past experience, Zhang Qiyao compared the performance of foreign capital in other markets in 2008, and put forward that "even under the" quasi crisis "mode, the possibility of systematic withdrawal of A shares is not large.

He said: "according to the experience of the past 3 years, during the period of significant rise in the volatility of the US stock market, the A shares will inevitably reduce their holdings. However, the impact on foreign capital formation is relatively limited whether from the scale of sustainability or reduction. Secondly, referring to the experience of Korea and other markets, even during the global financial crisis, there was no systematic withdrawal of foreign capital. During the global financial crisis in 2008, there was no systematic withdrawal of foreign capital in South Korea and other markets, especially in the initial stage of opening up and relatively low foreign investment. The long term admission process of foreign capital was not interrupted by the crisis.

According to the test of the scale of capital outflow, Wang Hanfeng judged that the outflow of capital in North China was coming to an end. "We estimate that under the benchmark situation, the cumulative net scale of Shanghai and Shenzhen Hong Kong Tong's northbound net outflow may reach 80 billion -1000 billion yuan. Shanghai and Shenzhen Hong Kong through northward capital has accumulated a net outflow of about 75 billion yuan from the high point, which may be coming to an end. The Chinese market is relatively undervalued, the epidemic control is relatively advanced, the policy space is relatively adequate, and the medium-term outlook should not be overly pessimistic. Wang Hanfeng said.

Xie Yaxuan said: "overseas investors' backfires" choose to sell Chinese assets side shows that China's capital market liquidity is good, the market has depth, can resist the current situation of foreign capital flows. In the longer term, the attractiveness of China's assets comes from the global competitive advantage of China's manufacturing and the responsible attitude of opening to the outside world. Recognizing the source of value of Chinese assets, international capital will naturally flow back into China's capital market after the impact.

Reporters interviewed Hengda Group chief economist Ren Ze peacetime, he clearly denied that the trend of foreign capital allocation of A shares will be changed because of short-term hedging and dealing with the technical redemption of liquidity pressure.

Ren Zeping told reporters: "the short term depends on China's effective prevention and control of the epidemic. It will depend on a series of measures such as the new infrastructure and other measures to enable China to open a new cycle. The best investment opportunities in the future will be in China, including not only the A share market, but also the large class assets represented by the renminbi, which should have investment value.

And Fuji Russell also said that the latest batch of A shares will be included in the index arrangement as scheduled. It was completed only once at the end of March, and changed to 1/4 in March 2020. The remaining 3/4 will be implemented together with the June 2020 index assessment.

"Although Fuji Fuji has adjusted the pace of its incorporation in the light of the current situation, it has not changed the arrangements taken into consideration. It can also be regarded as a long-term plan for foreign capital to not withdraw from A shares. Some of the recent outflow of foreign capital is based on the stress response of the current market environment." The aforementioned Hongkong area information management personage thinks.

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