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China to draw massive foreign capital

Source: Global Times

China's financial market could attract as much as $200 billion in 2019, as foreign investors eye opportunities in Chinese stocks from high-tech to the real economy, after China vowed to further open up the financial sector and global indexes included Chinese stocks.

The $200 billion estimated for 2019 will be in addition to $120 billion that flowed into the Chinese stock and bond markets in 2018, CNBC reported on Friday, citing a report by Citi.  

Morgan Stanley estimated that the total foreign capital inflows into the Chinese A-share market in 2019 will range between $70 billion and $125 billion, far outstripping the past three years' average of $35 billion.

The increase may have been boosted by the inclusion of Chinese assets in benchmark indexes such as MSCI's absorption of A-share stocks and the Bloomberg Barclays bond index. The inflows are also being drawn by the low valuations in the Chinese stock market.

But financial sector opening-up and the strength of the Chinese economy are behind this broad trend, analysts said on Monday.

Xi Junyang, a professor at the Shanghai University of Finance and Economics, said that the anticipated rise in foreign capital inflows means increased demand for A-share stocks, and the inflows will become a stabilizer for the market, which has been hovering at multi-year lows. 

However, the market performed well during the first trading week after the Spring Festival holidays. The Shanghai Composite Index posted its biggest weekly gain in three months, rising 2.5 percent. The index was up another 2.68 percent on Monday. 

Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times that in 2019 foreign funds might overtake domestic mutual funds as the lead investors in the Chinese market, given the rising momentum. 

As of the end of 2018, mutual funds' shareholding totaled 1.47 trillion yuan ($217.2 billion), ahead of foreign capital's 1.15 trillion yuan by 318.89 billion yuan, according to media reports, citing data from China Galaxy Securities Co.

"The investment strategy adopted by foreign capital will reshape the A-share market, which is now dominated by speculative trading," Xi said. 

"Active foreign investors not bound by index holding could look for opportunities in high-tech companies that contribute to the development of the Chinese real economy. Such companies receive plenty government policy dividends," noted Xi. 

The new trend is taking place as China's financial sector is fast rolling out opening-up measures. In the first two months of 2019, China has opened up its credit rating market to foreign capital. 

It also eased restrictions on the Qualified Foreign Institutional Investor and the RMB Qualified Foreign Institutional Investor programs, making it easier to move funds out of the Chinese mainland. It also rolled out regulations on funds used by foreign employees to take part in their companies' incentive programs. 

Luo Yuding, Shanghai-based financial and equity market expert and independent board director of brokerage firm Sinolink Securities, said financial opening-up measures concerning cross-border capital flow will have the most direct impact on foreign investment in A-share issues. 

"Domestic investors should abandon their pessimistic outlook so as not to miss this round of opportunity," Luo said. 

Even if there will be short-term cross-border outflows, the impact won't be too big as the A-share market is worth 50 trillion yuan, Luo said. 

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