Even foreign investors can't resist Shanghai stocks any longer

(Photo by Scott Halleran/Getty Images)

The ANZ’s excellent wrap of the weekly flow of funds in the Asia-Pacific region is out and shows that even foreign investors can no longer resist the tractor beam of Shanghai’s stock market rally.

The ANZ highlighted that having been leery of the recent surge in Shanghai stocks, which are up 14% this month and 32% this year as measured by the composite index, foreigners have bought $225 million of stocks in the past week. That’s the first week in nine that foreigners were not net sellers of Shanghai stocks.

China equities have been the predominant driver of the region’s fund flows in recent weeks. For this week, China equity flows reversed to register an inflow of USD225m against last week’s large outflow of USD2,037m. This is the first time in nine weeks that foreign investors bought into China equities given that the SHCOMP index has been breaking new highs. Foreign investors were wary about a possible market correction, but concerns may have eased on expectations that the government might support growth by easing policy given the weak March activity data.

That feeling that the Chinese slowdown means the central bank’s decision on easing is all too easy is one growing across global markets.

This is driving a flow of funds toward stocks inside China with 1.68 million new accounts opened by retail investors in the past week. The question for foreign investors is how to deal with the tension between their fear of a Shanghai stock bubble and their desire to participate in what has become the rally of the year.

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