Due to Reopening Optimism... Global Pooled Funds Leave US and Move to Chinese Mutual Funds

$2 Billion Net Inflow This Year Alone
US Equity Funds See 6th Week of Net Outflow
Funds Flow into High-Risk and Options

[Asia Economy Reporter Lee Ji-eun] Global money moves are taking place amid China's reopening (resumption of economic activities) and the US pivot (shift in monetary policy). In particular, while global funds are pouring into funds tracking the Chinese stock market, money is flowing out of US equity mutual funds as expectations for the pivot have diminished.

On the 14th (local time), the Wall Street Journal (WSJ) reported that $2 billion (2.5482 trillion KRW) flowed into US-based mutual funds purchasing Chinese stocks this year. This is a significant increase compared to the $1 billion inflow in the second half of last year.

This capital movement is driven by expectations that the Chinese economy will revive due to reopening. According to China's state-run Global Times (GT), some experts predict that China's GDP growth rate, which was 3% last year, could rise to the 6% range this year. Supported by optimistic forecasts for economic recovery, the MSCI China Index, composed of 717 stocks including Alibaba and Tencent, has risen 45% this year compared to its lowest point in October last year.

On the other hand, funds have massively exited US equity funds. According to WSJ, $31 billion was net withdrawn from US equity mutual funds and exchange-traded funds (ETFs) for six consecutive weeks. This is the longest period of outflows on a weekly basis since the first half of last year and also the largest outflow amount from US equity funds since 2016.

Experts analyze that the outflows occurred as investors recalibrated their expectations amid concerns that the US Federal Reserve's tightening could last longer than anticipated. The Standard & Poor's (S&P 500) index rose 6.5% year-to-date until last week but fell 1.1% during the past week.

Investors redirected the withdrawn funds into overseas equity funds and bond funds outside the US. WSJ explained that investors, anticipating the US stock rally to end soon, appear to have increased investments in fixed income assets and inexpensive foreign equity funds.

Jason Draho, Head of Asset Allocation at Swiss bank UBS, said, "The outlook for the Chinese and some Asian stock markets is more attractive than the US stock market," adding, "Unlike the US stock market this year, there is a high possibility of significantly increased returns from China."

Meanwhile, the market is also seeing a trend of investment flowing into high-risk individual stocks and options. Technology stocks were identified as the most popular among individual stocks. Among individual stocks, Tesla, which rose 60% just in early this year, showed the strongest buying pressure.

Todd Sohn, strategic analyst at market research firm Strategas Securities, said, "Investors and traders are looking for better stocks rather than trading through indices," explaining that passive investments simply tracking indices are no longer favored amid the interest rate hike trend.