Investors dump Chinese stocks, bonds amid global recession fears

Foreign investors continued to cut holdings in Chinese bonds in July and dumped equities for the first time in four months, according to a report by the Institute of International Finance (IIF).

Emerging markets (EM) posted a fifth straight month of portfolio outflows, setting the longest such streak in records going back to 2005, as global recession risk, inflation and a strong dollar drew away cash, the report released on Wednesday showed.

Chinese debt witnessed outflows of about $3bn last month, while $6bn exited other EM, IIF estimated.

If confirmed by official data, it would be the sixth consecutive month of foreign outflows from China’s $20 trillion bond market.

During the same period, China’s stock market witnessed $3.5bn of foreign outflows, compared with marginal inflows of $2.5bn in other EM, the global financial services trade group added.

The benchmark CSI 300 Index dropped 7 percent, down every week in July, as domestic COVID-19 flare-ups, property woes and global recession risks weighed on the market.

“China’s A-shares saw a range-bound, generally weaker trend since July under both domestic and overseas influences,” China International Capital Corporation (CICC) said in a note.

Data showed the world’s second-largest economy slowed sharply in the second quarter, missing market expectations with only a 0.4 percent increase from a year earlier.

With the fallout of the Ukraine war continuing, Sino-US tensions over Taiwan mounted as US House of Representatives Speaker Nancy Pelosi visited the self-ruled island claimed by Beijing.

“For the coming months, several factors will influence flows dynamics, among these the timing of inflation peaking and the outlook for the Chinese economy will be in focus,” IIF said.

Overseas investors have been reducing holdings of Chinese bonds since February, as diverging monetary policies kept Chinese yields pinned below their US counterparts.

The People’s Bank of China has been easing policy to aid a COVID-hit economy, while the US Federal Reserve has been hiking rates to fight soaring inflation.

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