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If the sell-off continues, it could trigger China’s first annual outflows since 2016, when Bloomberg began tracking purchases through trading links with Hong Kong. (Photo: Reuters)
From Bloomberg News
China may experience its first annual outflows from stocks in 2024, but investors can’t tell from exchange data when that will happen.
That’s because the country’s bourse will stop publishing daily data on foreign fund inflows from Monday, leaving investors without a key sentiment indicator to track the $8.3 trillion market.
The change, first hinted at in April, comes as foreign funds have steadily withdrawn from the market, bringing their year-to-date total to negative as of Friday.Analysts see the move as a new effort by authorities to shore up the market, hoping to tame volatility caused by high-frequency data and shift investor attention to longer-term indicators.
“Beijing has stopped publishing it because the data is bad and volatile,” said Xinyao Ng, investment director at Abdurn Asia. “They probably don’t want the data to spark more capital outflows,” but “it doesn’t solve the root of the problem,” he added.
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If the sell-off continues, China’s stock market could see its first annual outflows since 2016, when Bloomberg began tracking purchases through trading links with Hong Kong.
In the absence of data, investors have had to rely on the central bank’s quarterly reports on financial assets held by overseas companies, which have a time lag and measure the value of outstanding shares held by foreigners through broader channels rather than flows.
The CSI 300 index has fallen more than 9% from its May peak as an expected earnings recovery has failed to materialize and policy support has been insufficient. It is down 2.5% for 2024, threatening a fourth year of declines on record and lagging behind gains of about 13% for Japan’s Topix index and India’s Nifty 50 in local currency terms.
Stocks have been sluggish despite big purchases by sovereign wealth funds, which have pumped an estimated $66 billion into exchange-traded funds this year. There are few signs of an economic recovery, with the latest data showing an unexpected slowdown in fixed-asset investment and softening industrial production.
With the US presidential election approaching and anti-Beijing rhetoric and adverse trade measures expected to accelerate, global funds will find even more reason to avoid China.
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“Market sentiment remains sluggish as further disappointing macro data is released and policy easing remains reactive,” Morgan Stanley analysts including Laura Wang wrote in a note on Thursday. “We expect market volatility to remain relatively elevated and advise taking a more defensive position in the near term.”
The decision follows the suspension in May of disclosing data on intraday flows through trading links. Last year, China asked fund companies to stop showing real-time estimates of the net asset value of mutual fund products.
Lack of data transparency has been a regular issue in China, with some statistics being withdrawn without explanation, especially when the information is unfavorable for the economy or markets.
After the new rules come into effect, the only data the exchange will publish daily will be the total trading volume and number of transactions in stocks and exchange-traded funds through the Hong Kong link, as well as the trading volumes of the 10 most active stocks. The total number of shares held through the link will be published quarterly.
Real-time trade data on flows from mainland China to Hong Kong – known as southbound data – will continue to be available after the August cut-off.
First Edition: August 18, 2024 | 10:45 PM IST
