China’s policy has been replete with measures in the last five years. However, none have succeeded to attract professional investors into the second-largest economy of the world.
Recent data shows that portfolio managers’ exposure to Beijing has been materially reduced since the middle of 2020.
Investors are staying away from Chinese stocks because of government initiatives aimed at improving the investment climate.
Why? Why? Because active managed funds are increasingly relying on the government’s stimulus to drive their stock prices instead of fundamentals.
Why are fund managers still underweight Chinese shares?
According to Morningstar data on 34 actively managed funds, professional investors have reduced their exposure towards Chinese stocks, including those listed Hong Kong.
Pando CMS Innovation ETF for example pulled out from China and Hong Kong stock last year because “predicting policy on Chinese stock markets is really difficult for us.” “We’d rather embrace certainty than uncertainty.”
Last year, the exchange traded fund sold its stakes at Meituan Tencent and Alibaba to invest in Broadcom, a US-based AI chip company, and Tesla Inc., a behemoth electric vehicle manufacturer.
AVGO is up over 100% compared to 52 weeks ago.
The Chinese economy will slow in 2025
HSBC’s Managed Growth Fund also reduced its exposure to China in a significant way over the last five years.
Hong Kong, the biggest Asian economy in 2020, will receive nearly 20% of assets. In late 2016, however, this allocation was reduced to only 3.4%.
APS Asset Management, a Singapore-based professional investor that has reduced its exposure to China said, “with hindsight we would have done better to sell everything.”
UBS predicts that the economic growth rate in China will slow to 4.0% for this year. UBS estimates a growth rate of 3.0% for 2026.
Investors do not understand the government’s stimulus program
Fund managers have been avoiding Chinese shares as they are increasingly worried that the stimulus measures will drive their price in 2025, not fundamentals.
Adam Coons, chief investment officer of Winthrop Capital said: “We are okay with being late in a Chinese equity recovery to mitigate the risk that this recovery will not be reality.”
Brian McCarthy, of Emerging Sovereign Group believes that the Chinese government’s efforts to boost stock market sentiment have been somewhat successful so far.
Brian Arcese, of Foord Asset Management and other investors, have cited a lack of knowledge of the government’s policy to justify their underweighting of Chinese stocks. He continued:
Over the long term, corporate fundamentals will remain the main driver, since sustained growth and performances are dependent on the strength and adaptability of the underlying business.
The post Is China’s economic stimulus effective in attracting investment? The ICD published the first version of this post: Are China’s stimulus measures effective in attracting investments?
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