Investors flock to Chinese equity funds amid economic stimulus measures

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Investors have shown a strong interest in equity funds focused on China following the announcement of economic stimulus measures in response to challenges faced by the property sector and the underperforming stock market. According to research conducted by BofA Global Research, China presents an excellent opportunity for contrarian long-term trading strategies.

BofA’s investment strategists, led by Michael Hartnett, highlighted in a recent note on Jan. 25 that the market does not view China as an attractive investment proposition. However, recent influxes of $11.9 billion into Chinese equity funds over the past week indicate a change in sentiment. The country’s central bank has taken significant steps to ease monetary policies following the deterioration of stock prices, reaching levels not seen since the global financial crisis of October 2008. This easing follows a period of foreign investors leaving the market and property stocks experiencing substantial deflation.

Cameron Brandt, director of research at EPFR, confirmed via email that funds targeting Chinese stocks witnessed approximately $12 billion of inflows during the week ending Jan. 24. Notably, these inflows were primarily directed towards exchange-traded funds (ETFs). EPFR tracks capital streams into both mutual funds and ETFs.

Read: Pummeled China ETFs jump after report Beijing may support its ailing stock market

China’s Central Bank Cuts Interest Rates and Reserve Ratio Requirements for Banks

China’s central bank has made significant cuts to interest rates and reserve ratio requirements for banks in an effort to support the country’s slumping equity markets. This development has attracted capital to China-focused equity funds, indicating a growing investor interest.

Stock Market Performance

Despite the recent measures taken by Chinese leaders and the central bank, Chinese stocks experienced a decline on Friday. The China CSI 300 index fell by 0.3%, contributing to its overall year-to-date decline of 2.8%. This index has been struggling over the past three years with consistent declines.

Impact on Exchange-Traded Funds

The iShares MSCI China ETF also faced a decline of 0.5% around midday on Friday, resulting in a year-to-date decline of around 6%. Despite a temporary surge earlier in the week due to stimulus hopes, the ETF’s performance has been lackluster.

Investor Sentiment

Investors have shown an increased interest in China equity funds, with flows reaching levels last seen during the early third quarter of 2015. This surge in inflows coincides with Chinese policymakers’ efforts to stabilize domestic equity markets.

The developments in China’s market will continue to be closely monitored by investors around the world.

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