All signs point to more money being invested on the Chinese markets this year

China’s financial markets had record inflows

All signs point to more money being invested on the Chinese markets this year

China’s financial markets had record inflows

A record amount of money poured into China’s stock markets in 2018. Analysts say that figure will likely increase as closely followed indexes raise their weightings for Chinese assets.

China’s bond and stock markets experienced a major inflow of $120 billion last year and experts anticipate that that amount could reach $200 billion this year, boosted by the inclusion of Chinese assets in benchmark indexes. The report was made by Citi.

Although, unlike advanced economies, that don’t have so many regulations for financial markets, China is keeping its door open and investors are keen to get in as opportunities increase.

Chinese A-shares — or yuan-denominated stocks traded on the mainland — were included in the MSCI Emerging Markets Index for the first time last year, allowing investors to access the Chinese equity market more easily. Now, MSCI is considering whether to further increase the weighting of A-shares in its indexes, and could announce its decision by the end of this month.

Meanwhile, financial information firm Bloomberg announced in January that yuan-denominated Chinese government and policy bank securities will soon be included in its bond benchmark, which is the Bloomberg Barclays Global Aggregate Index.

What is the impact of trade talks?

While Chinese authorities have been really secretive about what they consider potentially destabilizing capital outflows, they largely welcome inflows, which have increased following various arrangements that allow foreign investors to buy domestic stocks and bonds through Hong Kong.

The possibility of reduced trade tensions between the United States and China could also improve the investor’s perspective on making investments on the chinese market given that some uncertainties may start to fade, as Ronald Wan, non-executive chairman at Partners Financial Holdings in Hong Kong, told CNBC on Thursday, February 14th.

People will recognize that the trade war will be an “ongoing problem,” Wan said, but he added that he did not expect anything “drastic” to happen.
All of this represents really good news considering that China’s economy is slowing and the growing is becoming more and more reliant on foreign money.

The potential for increased A-share weighting has “sparked aggressive equity inflow” into Chinese markets through Hong Kong ahead of MSCI’s decision later this month, Ken Cheung, senior Asian foreign exchange strategist at Japanese bank Mizuho in Hong Kong, said in a Wednesday note.
The inclusion of Chinese bonds in the Bloomberg Barclays Global Aggregate Index is also significant, said Ken Peng, head of Asia Investment Strategy at Citi Private Bank in Hong Kong.

Chinese bonds will now make up 6 percent of that index, from 0% before.