International investors have pulled billions out of China as the country’s economy continues to stumble and relations with the U.S. fail to ease, according to The Wall Street Journal.
Since August, international investors trading in China’s top exchanges in Shanghai and Shenzhen have pulled out more than $24 billion through a trading link in Hong Kong, according to the WSJ, the largest net outflow of foreign funds since the link was created in 2014. The MSCI China Index, which serves as a tool for investors to gauge expected returns in the country, has fallen 10% this year as China’s economy reports lackluster growth amid a real estate crisis and relations with the U.S. fail to significantly improve.
“For every deal we now look at geopolitical risk, regulatory risk even before we start properly evaluating the attractiveness of the business and the business model,” Alvin Lam, operating partner based in Hong Kong at private equity firm CVC Capital Partners, said at a private equity forum in November.
Foreign investors, particularly in the U.S., still have substantial holdings in the country, with Goldman Sachs saying that in a very harsh scenario, U.S. pension funds, active mutual funds and hedge funds could reallocate their positions, selling off more than $170 billion in Chinese shares, according to the WSJ.
Foreign investors sold Chinese stocks for a record fourth straight month
More than 75% of foreign money flowing into #China‘s stock market in the first seven months of 2023 has already left the country amid concerns over economic growth and a liquidity crisis in the real estate… pic.twitter.com/uytvmGtED4
— Multipolar Market (@MultiPolarMarkt) December 1, 2023
U.S.-China relations are being stressed by a number of factors, including an ongoing trade war involving the production of semiconductors useful for militaristic and consumer aspects, as well as for artificial intelligence and other technological research.
The Biden administration has placed a number of sanctions on the Chinese chip industry, including an October 2022 order blacklisting numerous Chinese chip companies from working with U.S. firms, while China has placed restrictions on the exports of rare earth metals essential for certain technologies.
China’s attitude toward Taiwan is also straining relations with the U.S., as the country has previously promised to invade the island. China has not ruled out taking military action toward Taiwan, while the U.S. has not ruled out defending the country in the case of an invasion.
The Chinese economy has failed to gain steam in its recovery from the COVID-19 pandemic following below-trend economic growth, with the recent purchasing managers indexes for November showing a decline in both the manufacturing and service sectors, according to the WSJ. The country’s real estate sector is also plagued by debt-laden companies struggling to pay, with companies accounting for 40% of Chinese homes already having defaulted since 2021.
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