Mutual funds seen reducing China exposure in June- Goldman Sachs

Investing.com-- Global mutual funds were seen “modestly” reducing their exposure to Chinese markets in June, Goldman Sachs analysts said in a note, with the outflows coming amid growing doubts over an economic recovery in the country. 

EPFR data showed that global mutual funds in aggregate held a 5.5% allocation in Chinese equities, while active funds remained underweight on the country. 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes clocked steep losses in recent weeks, and were both trading at over five-month lows.

This trend came amid heavy selling across emerging markets in Asia, amid souring global risk appetite. China saw the second-highest amount of outflows in the past week, behind only Taiwan, which was battered by a rout in technology stocks.

Sentiment towards China worsened following a string of weak economic readings over the past two months, especially data showing the economy grew less than expected in the second quarter.

Speculation over the 2024 U.S. Presidential race also kept sentiment towards China constrained, amid uncertainty over what a change in administration will entail for Washington’s stance towards Beijing. 

The Chinese government has offered scant cues on stimulus measures to support the economy, with the Third Plenum of the Chinese Communist Party offering few details on planned measures.

Still, the government appeared to be intervening to support local stock markets. 

GS analysts said that domestic Chinese exchange-traded funds and stocks still saw buying, although this was likely due to buying by state-backed asset managers.

Asian funds outside Japan appeared most bullish on Singapore, Hong Kong and Indonesia, and were the most underweight on China, Taiwan and Malaysia, GS analysts said.