CICC Strategy: Active Foreign Investment Accelerates Outflow from Chinese Market, Global Stocks Accelerate Inflow.

Domestic liquidity, active foreign capital continues to flow out of A-shares and Hong Kong stock markets. The market is in a policy vacuum period before next year's two sessions. The 3% year-on-year growth of social zero in November is below market expectations, suppressing investor sentiment. The hawkish stance of the Federal Reserve has led to a significant increase in US bond yields and the US dollar index, tightening overseas liquidity, causing the market to weaken again, and active foreign capital continues to flow out of the domestic market. As of Wednesday this week (December 18), active foreign capital accelerated its outflow from the Chinese market by $930 million (compared to $800 million outflow the previous week), with passive foreign capital accelerating its outflow from the A-share market by $400 million (compared to $190 million outflow the previous week). Although passive foreign capital inflows into overseas Chinese stocks (Hong Kong stocks + ADR) surged by $1.55 billion, it mainly flowed into ADRs in the US, with an inflow of $1.59 billion (compared to an inflow of $370 million the previous week), while passive foreign capital flowing into China and other emerging markets out of overseas Chinese stocks amounted to outflows of $340 million and $460 million (compared to outflows of $200 million and $120 million the previous week). Looking ahead, the market is in a policy vacuum period before next year's two sessions, and after Trump's inauguration on January 20, external disturbances such as tariffs may occur, and the market is also digesting the hawkish stance of the Federal Reserve at the December FOMC meeting. The market may continue in a volatile pattern, and the expectation of a significant inflow of overseas funds is not realistic. In global markets, outflows narrowed in the Indian market, while outflows switched to inflows in US stocks, and outflows widened in Japanese stocks. As of Wednesday this week (December 12-18), active foreign capital outflows in the Indian market narrowed to $40 million (compared to $280 million outflow last week), while US stocks saw outflows of $160 million this week (compared to inflows of $540 million last week), and outflows in the Japanese stock market widened to $690 million (compared to $450 million outflow last week). Chinese Market: Outflows of active foreign capital continue to increase; Inflows from the south accelerated. Overseas Funds: EPFR shows that active foreign capital is accelerating its outflow from the Chinese market. As of Wednesday this week (December 12-18), active foreign capital flowed out of A-shares by $230 million (compared to $190 million outflow last week), while passive funds flowed out by $400 million (compared to $190 million outflow last week); at the same time, overall overseas funds flowed in by $850 million into Hong Kong stocks and ADRs (compared to $300 million outflow last week), with active funds flowing out by $700 million (compared to $610 million outflow last week) and passive funds flowing in by $1.55 billion (compared to $310 million inflow last week). Connectivity Funds: Northbound funds have stopped disclosing net purchase amounts since August 16, and the average daily trading volume has narrowed this week. This week (December 16-20), Northbound funds had an average daily trading volume of 180 billion yuan, lower than the 230.6 billion yuan trading volume last week. In terms of individual stocks, Contemporary Amperex Technology, Kweichow Moutai, East Money Information, ZTE Corporation, and GigaDevice Semiconductor Inc. had the largest trading volumes. Southbound inflows slightly expanded, with the mainland banking sector receiving the most inflows. This week (December 16-20), total Southbound funds inflow reached 25.89 billion Hong Kong dollars, with a daily average inflow of 5.18 billion Hong Kong dollars, slightly higher than the 4.22 billion Hong Kong dollars inflow last week. In terms of industries, the mainland banking, consumer, and energy/raw materials sectors received the most Southbound funds last week. In terms of individual stocks, Alibaba, China Construction Bank Corporation, and China Mobile Limited were favored by Southbound funds last week, while sell-offs included Meituan, Tencent, and Kuaishou. Global Markets: Global stock inflows accelerated, bond markets switched to outflows, and currency market outflows expanded; US stocks switched to outflows, while outflows from emerging markets narrowed. Cross-market and asset allocation: US stocks switched to outflows, while outflows from emerging markets narrowed. In terms of active foreign capital, US stocks saw outflows of $160 million this week (compared to inflows of $540 million last week), outflows from developed Europe expanded to $4 billion (compared to $3.22 billion outflow last week), outflows from the Japanese stock market widened to $690 million (compared to $450 million outflow last week), while outflows from emerging markets narrowed to $1.96 billion (compared to $2.09 billion outflow last week). Overall, global stock inflows accelerated, bond markets switched to outflows, and currency market outflows expanded. Allocation Proportions: As of October 30, active global funds allocated to China were about 0.21ppt lower than the benchmark, slightly expanding from the 0.16ppt underweight at the end of September. In terms of allocation proportions, active global funds increased allocations to the US (+1.66ppt) and Brazil (+0.13ppt) more, while reducing allocations to the UK (-0.45ppt) and Japan (-0.34ppt) more; in terms of extreme underweight proportions, in October the US (+0.70ppt), France (+0.13ppt), and Brazil (+0.03ppt) saw more upward movements in extreme underweight proportions, while Germany (-0.22ppt), Japan (-0.19ppt), and China (-0.05ppt) saw more downward movements in extreme underweight proportions. In terms of regional types, funds from Europe were the main contributors to the overall outflows; at the sector level, overseas funds were overallocated to Chinese healthcare, consumer, semiconductor and hardware, and capital goods sectors, while underallocated to internet, financial, and real estate sectors. This article is sourced from "CICC Strategy," authored by Liu Gang, Wang Muyao, etc.; edited by Liu Xuan, GMTEight.