CICC: Outflow of active foreign capital slowing down, foreign capital's underweight ratio returns to April levels.

Abstract The noteworthy changes in global liquidity this week are: 1) EPFR fund data we tracked shows that as of Wednesday this week (December 25), the outflow of active foreign funds has slowed significantly; 2) in terms of the Connect schemes, the average daily turnover of northbound funds narrowed this week compared to last week, while southbound fund inflows expanded; 3) global stock markets have turned into outflows, while bond and currency markets have turned into inflows; 4) outflows from US stocks have accelerated, while outflows from emerging markets have narrowed. In the Chinese market, overseas active foreign funds continue to flow out but the scale has narrowed, while passive funds have once again turned into outflows. With the important end-of-year domestic window passing, external shocks, especially the sharp rise in US Treasury rates and the US dollar index under the hawkish stance of the Fed, have caused market volatility. Against the backdrop of tightening overseas liquidity, the overseas passive funds that previously flowed significantly into Chinese stocks turned back into outflows of $990 million this week (compared to inflows of $1.55 billion in the previous week). Although the outflow of active overseas funds has narrowed (an outflow of $18.20 million compared to an outflow of $700 million in the previous week), it still continues the trend of outflows for the past 11 weeks. At the same time, expectations of domestic monetary easing have heated up while expectations for fiscal stimulus have diminished, leading to a significant decline in domestic interest rates. This also reflects pressure on domestic growth expectations from the denominator end, making it difficult to attract foreign inflows. Therefore, under the combination of "new highs in US bonds + new lows in Chinese bonds," overseas funds may continue to be under pressure in the short term. From the latest data released up to November, the allocation ratio of overseas active funds decreased from an underweight of 0.9 percentage points in September to a further underweight of 1.2 percentage points, returning to the lowest level since April this year, as we previously predicted. However, from another perspective, there is relatively limited room for further decline from the already low level. Moreover, we believe that the Fed can still cut rates in the future, and the short-term market expectations are often overused, with interest rates and financial conditions having a reflexive effect on the fundamentals, thus the current "hawkish" stance can ultimately provide room for further "cuts." Global liquidity, with inflows into the Indian and Japanese markets, while outflows from US stocks accelerated. As of Wednesday this week (December 19-25), foreign funds turned into inflows of $40 million in the Indian market (compared to outflows of $40 million in the previous week), while outflows from US stocks accelerated to $820 million this week (compared to outflows of $160 million in the previous week), and the Japanese stock market turned into inflows of $370 million (compared to outflows of $690 million in the previous week). Text Chinese market: Outflows of active foreign funds slow down, while southbound inflows accelerate Overseas funds: EPFR shows that active foreign funds are flowing out of the Chinese market at a slower pace. As of Wednesday this week (December 19-25), active foreign funds flowed out $100 million from A-shares (compared to outflows of $230 million in the previous week), while passive funds flowed out $310 million (compared to outflows of $400 million in the previous week); at the same time, overall overseas funds flowed out $1.01 billion from Hong Kong stocks and ADRs (compared to inflows of $850 million in the previous week), with active funds flowing out $20 million (compared to outflows of $700 million in the previous week) and passive funds flowing out $990 million (compared to inflows of $1.55 billion in the previous week). Connect funds: Northbound funds have stopped disclosing net purchase amounts since August 16, and the average daily turnover has narrowed this week. This week (December 23-27), the daily average turnover of northbound funds reached 150.9 billion yuan, less than the 180 billion yuan turnover in the previous week. In terms of individual stocks, Contemporary Amperex Technology, ZTE Corporation, East Money Information, Hygon Information Technology, and GigaDevice Semiconductor Inc. had the largest turnover. Southbound inflows slightly expanded, with the most inflows in the mainland banking sector. This week (December 23-27), total southbound funds flowed in 16.37 billion Hong Kong dollars, with a daily average inflow of 5.46 billion Hong Kong dollars, slightly higher than the 5.18 billion Hong Kong dollars in the previous week. At the industry level, southbound funds flowed most into the mainland banking, energy/materials, and information technology sectors last week. In terms of individual stocks, Industrial and Commercial Bank of China and Semiconductor Manufacturing International Corporation were favored by southbound funds last week, while Meituan and KINGSOFT CLOUD were most sold. Global markets: Global stock markets turn into outflows, while bond and currency markets turn into inflows; outflows from US stocks increase, while outflows from emerging markets narrow Cross-market and asset allocation: Outflows from US stocks expanded, while outflows from emerging markets narrowed. In terms of active foreign funds, US stocks turned into outflows of $820 million this week (compared to outflows of $160 million in the previous week), developed markets in Europe turned into inflows of $920 million (compared to outflows of $4 billion in the previous week), the Japanese stock market turned into inflows of $370 million (compared to outflows of $690 million in the previous week), and outflows from emerging markets narrowed to $230 million (compared to outflows of $1.96 billion in the previous week). Overall, global stocks have turned into outflows, while bond and currency markets have turned into inflows. Allocation ratios: As of November 30, major types of global active funds have allocated less to China than the benchmark by about 1.16 percentage points, which is essentially unchanged from the underweight of 1.17 percentage points at the end of October. In terms of allocation ratios, active funds investing globally have significantly increased their allocations to the United States (+1.63 percentage points) and Singapore (+0.07 percentage points), while reducing their allocations more to France (-0.37 percentage points) and Japan (-0.11 percentage points); in terms of highly underweight allocations, in November the United States (+0.24 percentage points), Japan (+0.14 percentage points), and Germany (+0.08 percentage points) saw significant increases in highly underweight allocations, while Brazil (-0.05 percentage points), India (-0.02 percentage points), and the United Kingdom (-0.01 percentage points) saw declines in highly underweight allocations.In terms of regional types, funds managed by Europeans are the main outflow in general; at the sector level, overseas funds are overweight on Chinese healthcare, consumption, semiconductor and hardware, and capital goods, and underweight on the internet, finance, and real estate sectors.This article is from the WeChat public account "Kevin Strategy Research," authored by Liu Gang, Zhang Weihan, etc.; Edited by GMTEight: Chen Qiuda.