Foreigners Sell China Amid Economic Uncertainty... 4.2 Trillion Won Sold in September

Despite Improvement in China's Indicators, Economic Outlook Remains Pessimistic

As pessimistic outlooks on the Chinese economy deepen, foreign capital continues to withdraw from the Chinese stock market.

According to major foreign media on the 23rd, foreign investors net sold stocks worth 23 billion yuan (approximately 4.22 trillion won) in the Shanghai and Shenzhen stock markets from the 1st to the 21st of this month.

Foreign investors sold a record 90 billion yuan (approximately 16.49 trillion won) worth of Chinese stocks in August. Although the net selling volume by foreigners has decreased this month, they are still pulling funds out of the Chinese stock market.

Despite some recent improvements in Chinese economic indicators, pessimism prevails due to escalating US-China geopolitical tensions, a real estate market slump, and weakened consumption, making a quick economic recovery in China unlikely.

The foreigners' "sell China" move is leading to sluggishness in the Chinese stock market. The Shanghai Composite Index fell 6.3% from last month to the 21st of this month. With authorities being reluctant to announce large-scale economic stimulus measures and the default of Country Garden, the largest private real estate developer, occurring in early last month, foreign investors' sell-off continued. Although China has introduced measures to revitalize the stock market, such as reducing stock transaction taxes and restricting major shareholders' stock sales since last month, these efforts have been insufficient to stop the market decline.

Prashant Bayani, Asia Chief Investment Officer (CIO) at BNP Paribas, analyzed, "With real estate accounting for 70% of Chinese household assets, poor real estate sales and housing prices are delaying a consumption-led economic rebound," adding, "Consumers will continue to feel uncomfortable spending until the real estate, which makes up most of their assets, hits bottom and rises." He further argued that to boost the stock market, authorities need to make efforts to stimulate the real estate market and expand incentives to increase consumption.

On the other hand, there is growing optimism within China that the economic recovery will accelerate in the fourth quarter of this year. Especially, recently released economic indicators have exceeded market expectations and show an improving trend. Industrial production in China increased by 4.5% year-on-year in August, and retail sales also rose by 4.6% in the same month. Both indicators surpassed market forecasts and improved compared to July's figures (3.7% and 2.5%, respectively).

Deng Chen, Head of Asia Macro Research at Pictet Asset Management, stated, "We believe the economy has already bottomed out, and this is confirmed by the data," while analyzing, "From a market perspective, overall pessimistic investor sentiment continues." Sunil Tirumalai, Director of Global Emerging Markets at UBS, said, "The market wants something that will give confidence before buying Chinese stocks," adding, "Anyway, Chinese stocks are cheap."