Global funds invest more in China as coronavirus spreads to the rest of the world

Market dislocations triggered by the coronavirus crisis have sent more capital into Chinese stocks — and some strategists see this as part of a longer-term trend. “We’re finding that a lot of foreign managers globally (are) reshuffling their holdings in this turmoil,” Todd Willits, head of flow tracking firm EPFR, said in a phone interview in late April. “Allocations to China are something people are looking to increase.”

As U.S. stocks plunged to three-year lows in March, allocation to Chinese stocks among more than 800 funds reached nearly a quarter of their nearly $2 trillion in assets under management, according to fund flow data from EPFR. That’s up from about 20% a year ago, and roughly 17% six years ago. The data covers funds that breaks down holdings into nine categories of stocks listed in mainland China, Hong Kong, Taiwan, the U.S. and Singapore.

Although U.S. stocks have recovered significantly from their lows in April, mainland Chinese stocks have held up relatively well. The Shanghai composite is down 5.2% for the year so far, versus the S&P 500 which is down 11.1% year-to-date as of Tuesday’s close.

EPFR data showed dedicated China equity funds have seen outflows in recent weeks since many of the funds have sold in order to meet redemptions, or customer requests for cash. However, in an indication that the outflows are temporary, EPFR said funds invested across several regions are maintaining their allocations to China at the expense of other markets, as a way to meet overall investment return goals.

For investment funds that are focused on global emerging market stocks, the average allocation to China is 34%, while that for funds invested in Asian stocks excluding Japan, the China allocation is 38%.

As trade tensions between the world’s two largest economies continue to drag on, political pressure has grown in the U.S. to limit American investment in Chinese companies.

Global funds invest more in China as coronavirus spreads to the rest of the world, CNBC, May 14