Investment Funds Make Record Pull-Out from Chinese Stocks in December 2023

Long-term global investment funds have been divesting from Chinese stocks at the fastest pace in the year 2023 during December, as funds hastened to diversify their investments away from the world’s second-largest economy, according to Morgan Stanley in a report by Reuters.

Last month, the stocks in China and Hong Kong experienced combined net outflows of $3.8 billion from long-term active managers alone, marking the worst month of the year 2023 and the third-largest monthly foreign outflow ever recorded, according to a research team from Morgan Stanley in a report released to clients.

The bank stated, “The withdrawal activities by investors from equity funds and the rebalancing by portfolio managers to further reduce exposure to China have contributed to the outbound flows.”

Chinese and Hong Kong stocks concluded the year 2023 as the worst performers among major global indices, impacted by geopolitical risks, slow economic recovery, and uncertainties surrounding policies.

In 2023, the Chinese benchmark index CSI300 fell by 11%, while Hong Kong’s Hang Seng Index saw a decline of 14%.

Beijing has introduced a series of measures intended to bolster the economy in recent months; however, analysts have stated that these actions are insufficient to restore market confidence.

Morgan Stanley reports that, of the $3.8 billion in outflows recorded in December, $1 billion can be attributed to investors pulling funds, while the remainder stemmed from the portfolio rebalancing efforts of fund managers abroad.

In 2023, Tencent, Alibaba Group, Kweichow Moutai, and Netease topped the list for “overweight portfolio additions,” while JD.com, Yum China, and AIA were among the top sellers, according to Morgan Stanley.

It appears that equity funds, in contrast to their long and short counterparts, experienced greater value in Chinese stocks in December.

The primary mediation team at UBS has stated that hedge funds have been purchasing Chinese stocks effectively over the past few weeks of 2023. They have been betting on a stimulus surprise and have been actively buying during dips.