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Foreign investors are turning increasingly bearish on Chinese stocks, offloading $1.1 billion of onshore equities during the first two weeks of this year. Investors faced further disappointment on Monday when China’s central bank kept the key borrowing rate unchanged.

Chinese Equities Record Worst Start to a Year Since 2019

According to data from Bloomberg, global funds sold 7.9 billion yuan ($1.1 billion) worth of Chinese stocks in the first two weeks of 2024, highlighting bearish investor sentiment amid the sluggish economic recovery.

After attracting large-scale investments from foreign investors in the final week of 2023, Chinese equities witnessed their worst start to a year since 2019. This slump has pushed stocks down to near five-year lows. 

The offloading came after global funds recorded last year their smallest annual purchases of onshore Chinese equities in history. As a result, the market is on track for a sixth consecutive month of outflows. 

Consumer stocks on the MSCI China Index have underperformed since September, ranking lowest after real estate. The aggregate market value of companies in these consumer indexes has dropped by approximately $157 billion.

China Keeps Interest Rates Unchanged Amid Weak Credit Data

Sentiment toward Chinese onshore stocks turned further pessimistic on Monday when China’s central bank decided to keep a key interest rate unchanged due to concerns over yuan volatility and the Federal Reserve’s distant possibility of policy easing. Investors hoped the People’s Bank of China would announce the first rate cut since August. 

Although the central bank injected more funds into the system to meet funding demand, the persistent weak credit numbers on Friday had heightened expectations for more aggressive measures.

“In light of the weak data, a cut would probably have undermined the yuan and led to unwanted currency weakness.”

said Robert Carnell, regional head of research for Asia Pacific at ING Groep NV.

“I think the authorities are quite constrained with what they can do — and so I’m neither disappointed or surprised, but I am resigned to this being another difficult year.”

The data released Friday indicated that China experienced its lengthiest period of deflation since 2009 in December. Financing and loan growth for the past month fell short of expectations, and exports recorded an annual decline, marking the first such instance since 2016. 

President Xi Jinping’s government is contending with challenges like weak domestic demand, an extended property crisis, and a sluggish job market while aiming for an ambitious growth goal this year. 

China is set to release its Q4 gross domestic numbers on Wednesday, providing investors with a more comprehensive overview of the country’s economic state. The Q3 report beat consensus estimates, driven by a strong retail sector and higher consumer spending.

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