CICC: Both active and passive foreign investors are withdrawing from the Chinese market.

CICC released a research report stating that the noteworthy changes in the global liquidity this week are as follows: 1) According to tracked EPFR fund data, as of this Wednesday (January 15th), active foreign funds are accelerating outflows from the Chinese market; 2) Regarding the Connect schemes, the daily average turnover of northbound funds has increased this week, while southbound fund inflows have narrowed; 3) In the global stock and bond markets, inflows have narrowed while there is now outflow in the currency market; 4) Outflows from US stocks continue and the outflows from emerging markets have expanded. In the domestic market, both active and passive foreign funds are flowing out of the Chinese market, with outflows from active foreign funds increasing. After experiencing a continuous decline since the beginning of the year, the market saw a rebound this week, confirming CICC's assessment that the Hang Seng Index at 19,000 points is a key support level. However, the market has not yet escaped the range-bound pattern. With the approach of Trump's inauguration, more investors are choosing to wait and see or even profit-taking, leading to a further expansion of outflows from active foreign funds. As of this Wednesday (January 9th-15th), active foreign funds accelerated outflows from China to $650 million (compared to $160 million outflows last week), with outflows from A-shares accelerating from $57.5 million in the previous week to $190 million, and outflows from overseas Chinese stocks reaching $460 million (compared to $98.66 million outflows last week). At the same time, passive foreign funds also changed from inflows of $510 million last week to outflows of $210 million this week. The policy uncertainty following Trump's inauguration may continue to exert pressure on foreign funds in the short term, but compared to the high point in 2021, the proportion of Chinese stocks held by foreign funds has decreased from 15% to 5.6%, underweighting by nearly 1.2 percentage points, indicating limited further downside potential. In the global market, outflows from the Indian market have expanded, and US and Japanese stocks have turned into outflows. As of this Wednesday (January 9th-15th), outflows of active foreign funds from the Indian market expanded to $430 million (compared to outflows of $70 million last week), US stocks turned into outflows of $230 million this week (compared to inflows of $3.13 billion last week), and the Japanese stock market turned into outflows of $300 million (compared to inflows of $140 million last week). Chinese market: Accelerated outflows from active foreign funds; Southbound inflows slowing down Overseas funds: EPFR data shows accelerated outflows from active foreign funds. As of this Wednesday (January 9th-15th), active foreign funds flowed out $190 million from A-shares (compared to outflows of $60 million last week), while passive funds flowed out $280 million (compared to inflows of $150 million last week); At the same time, overall outflows of $390 million from overseas funds, including outflows of $460 million from active funds (compared to outflows of $100 million last week) and inflows of $70 million from passive funds (compared to inflows $360 million last week). Connect funds: Northbound funds have stopped disclosing net buying amounts since August 16, with the daily average turnover increasing this week. This week (January 13th-16th), the daily average turnover of northbound funds reached 168 billion RMB, higher than last week's 162.8 billion RMB turnover. In terms of individual stocks, East Money Information, Contemporary Amperex Technology, Kweichow Moutai, Hygon Information Technology, and ZTE Corporation had the largest trading volumes. Southbound inflows have narrowed down, with the mainland banking sector receiving the most inflows. This week (January 13th-16th), total southbound funds flowed in 34.40 billion HKD, with a daily average inflow of 8.60 billion HKD, slightly lower than the 9.78 billion HKD average inflow from the previous week. In terms of industries, mainland banks, energy/materials, and insurance sectors received the most southbound funds last week. In terms of individual stocks, Tencent and Semiconductor Manufacturing International Corporation were favored the most by southbound funds this week, while Hua Hong Semiconductor and Xiaopeng Motors were sold off. Global markets: Inflows from global stock and bond markets have narrowed down, with a shift to outflows in the currency market; US stocks have turned into outflows and outflows from emerging markets have expanded Cross-market and asset allocation: US stocks have turned into outflows and outflows from emerging markets have expanded. According to active foreign funds, US stocks turned into outflows of $230 million this week (compared to inflows of $3.13 billion last week), followed by developed Europe with outflows of $1.71 billion (compared to inflows of $290 million last week), the Japanese stock market with outflows of $300 million (compared to inflows of $140 million last week), and outflows from emerging markets increasing to $2.17 billion (compared to outflows of $550 million last week). Allocation ratios: As of November 30, 2024, major types of active funds globally were underweight Chinese stocks by approximately 1.16 percentage points compared to the benchmark, which was essentially the same as the underweight of 1.17 percentage points at the end of October. In terms of allocation ratios, global active funds increased their allocation to the United States (+1.63 percentage points) and Singapore (+0.07 percentage points), while reducing their allocation to France (-0.37 percentage points) and Japan (-0.11 percentage points); in terms of ultra-underweight ratios, there was an increase in ultra-underweight ratios for the United States (+0.24 percentage points), Japan (+0.14 percentage points), and Germany (+0.08 percentage points) in November, while Brazil (-0.05 percentage points), India (-0.02 percentage points), and the UK (-0.01 percentage points) saw a decrease in ultra-underweight ratios. In terms of regions, funds from Europe were the main contributors to outflows as a whole; at the sector level, overseas funds were overweight on Chinese healthcare, consumer, semiconductor and hardware, and machinery sectors, while underweight on the internet, finance, and real estate sectors.