Everyone’s fleeing China stocks as foreigners dump US$1.4 billion

Morning commuters walk into a Shanghai Shentong Metro Co. subway train stop in the Pudong area in Shanghai, China. (Bloomberg pic)

HONG KONG: Chinese stocks’ worst October start in a decade has scared off the last remaining bulls.

Foreigners dumped a net 9.7 billion yuan ($1.4 billion) of A shares through exchange links with Hong Kong on Monday, just short of a record hit eight months ago, as mainland markets reopened after the week-long break. The FTSE China A50 Index of large caps, which includes stocks most favoured by overseas investors, sank almost 5% for its biggest selloff since January 2016. The yuan weakened as much as 0.5%.

Some traders said the apparent absence of the national team, as China’s state-backed funds are known, helped accelerate declines in the afternoon. Supportive measures from the People’s Bank of China failed to blunt the pain, following a barrage of negative news, including weak manufacturing data and accusations of election meddling. The slump followed losses of a similar magnitude by Chinese shares in Hong Kong last week.

“Foreign investors turned bearish, unlike their previous optimistic buying of Chinese A-shares,” says Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. in Hong Kong. “The massive northbound selling is a sign of growing concern over the relationship between the U.S. and China.”

International investors had started to load up on Chinese shares as global index compilers moved to increase weightings of yuan-denominated shares on their benchmarks and this year’s slump made valuations more compelling relative to global peers.

Foreign demand for another type of Chinese assets will be tested later this week, when the nation markets a sale of dollar bonds.