As Shanghai stocks surge higher foreigners are exiting the market in droves

SHANGHAI, CHINA – (Photo by Feng Li/Getty Images)

Over the past 9 months, the Shanghai Composite index rallied from a little over 2,000 to the current level of 3,666. That’s a gain of around 83% even though the official forecast for growth has been lowered to “around” 7% and this week we received clear evidence that the Chinese economy is still slowing.

But that’s not fazing traders in Shanghai, who are encouraged by the release of liquidity coming from the Bank of China RRR (Reserve Ratio Requirement) cuts and also the shaving of repo rates and injections of cash.

Offshore investors are not so enamoured with the outlook for Chinese stocks, however.

The ANZ, in its weekly summary of Asia Pacific fund flows, reports that investors appear to have taken note of the domestic economic drivers this week. They “think outflows in China might have been exacerbated by an 1- month low print in the HSBC China Manufacturing flash PMI.”

It’s a trend that has been accelerating recently. This week’s $2 billion outflow followed last weeks $1 billion of selling by foreigners. This brings the total sold in 2015 so far to more than $9 billion.

Here’s the chart that shows the big turnaround in foreign money flows in Chinese stocks.

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