Foreign investors help Chinese shares hit $10 trillion

Chinese shares surged at the start of the week to take their combined value to over $10 trillion. The world’s second largest stock market has increased $3.3 trillion since its March low, to reach a $10 trillion valuation for the first time since 2015. The rally has been partly fuelled by foreign investors who seem undaunted by the ongoing rumbling feud between Washington and Beijing and fears of an all-out US-China trade war.

Foreign ownership of Chinese equities is now at record levels, having jumped considerably over the past year. Foreign investors held a record 2.46 trillion yuan ($354.5 billion) in Chinese stocks at the end of June, up 50% from a year earlier. Bond holdings also surged to an all-time high of 2.57 trillion yuan, or 27% higher during the same period, according to data from the People’s Bank of China.

A major factor driving this foreign interest and optimism in Chinese shares is the speed and strength of the recovery of the local economy ever since the virus outbreak at the end of 2019. After initially falling 6.8% in the first quarter of 2020, the Chinese economy has been the first to rebound. It is now on track to expand 2% this year, making it the only major global economy to grow in 2020.

The stock rally has also been powered by a record number of IPOs from the likes of Bafang Electric, electrical appliances maker Midea Group, liquor producer Kweichow Moutai and Shanghai International Airport Co., which have all seen a surge in interest among global investors.

Buying into a market that is not linked to the U.S. stock indexes offers a hedge against a global sell-off, and the prospect of strong corporate earnings is proving an attractive lure for foreign investors.

“Foreign investor holding of Chinese stocks has climbed just as its share market has notched gains, which would then indicate that foreign investors have continued to buy the equity market,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. “If anything, the financial integration of China has deepened over this year.”

The U.S. has the world’s most valuable equities market at $38.3 trillion. Japan is No. 3 at $6.2 trillion, and Hong Kong’s is worth $5.9 trillion. The U.K. has the world’s fifth biggest market at $2.8 trillion.