Investors throw more money at US equities against China: EPFR fund flow data

BEIJING – Investors make billions of dollars more in US equity funds than Chinese, according to data from fund research firm EPFR Global.

“It looks like the baton is being handed over,” Cameron Brandt, director of research at EPFR, said in an interview Friday. “Many investors believe that the short-term game is the US, where the stimulus is increasing, compared to China, where there is prudent action, especially in the second half of the year.”

US equities declined in March 2020 as concerns about the impact of the coronavirus pandemic on economic growth gripped markets. By that time, China was on track to control the domestic spread of the virus, and the economy began to grow again in the second quarter.

Now, about a year out, global investors are assessing their prospects in both countries.

But in a global context, US and China equity funds are the two regions that have attracted the most inflow of international investors over the past two quarters, Brandt said.

“Both fund groups have seen a significant increase in interest since the middle of last year,” he said. “China funds got the first jump, but the US came back roaring.”

According to EPFR data, the net cumulative flow to US equity funds from the beginning of 2020 was negative until November. The streams turned positive in the weeks following the US presidential election, reaching $ 170 billion in the week ending April 7.

In contrast, Chinese equity funds had a net positive cumulative flow for much of last year, exceeding US levels until December. According to EPFR, the net cumulative flow to Chinese equity funds was only $ 29.78 billion by the week ended April 7.

The data company is a subsidiary of Informa Financial Intelligence and claims to be locating more than 100 100 investment funds worldwide with more than $ 34 billion in total assets.

While U.S. equities have climbed to new records this year, Shanghai’s composition has changed little since December. Millions of new investors piled on the continent’s stock market last year amid a surge in local equities, raising concerns about excessive speculation.

In recent weeks, Chinese authorities have repeatedly warned of financial market risks.

Analysts said Beijing’s GDP growth target of 6% for the year and other economic indicators indicated that policymakers, rather than focusing on rapid growth, wanted to tackle long-term problems such as high debt dependence.

“We have recently seen flows to China funds decline,” Brandt said. “There seems to be a certain amount of skepticism, even though the significant growth figures seem pretty impressive compared to everywhere else, China is still seen as vulnerable (if) monetary conditions tighten before the end of the year.”

He still expects funds to buy Chinese assets, given the strong demand from retail investors since mid-last year.

History suggests that it would require an extreme event to harm the interest in retail. Brandt said the last time there was such an increase in retail purchases, it only ended when the Chinese stock market crashed in 2015.

The Chinese government also wants to increase investor participation in the local stock market by making it easier for companies to publish and encouraging foreign institutions to invest.

CNen’s Yen No Lee contributed to this report.