Global investors place Rmb1tn bet on China breakthrough
Despite a global coronavirus pandemic, 2020 has transformed into the year it all came together for the country’s capital markets. With the influx of foreign capital, more than 1 trillion yuan of stocks and bonds have been snapped up.
Due to the increasingly improved financial system and efficient epidemic prevention and control, Chinese national debt became the champion of gold attracting this year — foreign holdings have increased by more than 900 billion yuan in the first 11 months. The net purchases of foreign A-shares also rebounded sharply from previous years, reaching approximately RMB 170 billion. In dollars term, the Chinese S&P Index is 13% higher than the S&P index this year. Shenzhen’s ChiNext, which focuses on technology stocks, rose about 59%, even surpassing the soaring Nasdaq Composite Index.
The inflow of US$150 billion in funds is in sharp contrast to the situation in January this year when the Chinese stock market was the first to feel the impact of the epidemic in the world. Now it’s the opposite. Since the second quarter, when the epidemic was globally spread, many countries have sharply cut interest rates, launched bond purchase plans, and pushed yields to near zero. However, with the improvement of the epidemic situation in China, economic growth gradually tended to the pre-epidemic level and domestic demand continued to rise. The central bank was able to keep the benchmark interest rate almost unchanged. This means that Chinese government bonds are almost the only option for bond investors to obtain income.
Professionals said that the purchase of onshore bonds by foreign investors has helped the RMB to appreciate for a record six months, and this momentum will be further promoted next year. Global investors want to diversify their assets from the US dollar, and their pent-up demand is supporting the Chinese currency. The growing confidence in the Renminbi is also helping to ease investors’ concerns about the Chinese market.
At the same time, after Trump’s election defeat, the relations between the US and China calmed down. It is believed that foreign interest in buying Chinese securities will rise further. China has prepared for both the good and the bad, and the flow of global money into the country “will only accelerate”.