Foreign Investment in A-shares Hits Record High in January as Wall Street Banks Turn Bullish on Chinese Stocks

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Foreign investment in Chinese A-shares rose to a record high in January, with Wall Street Banks turning bullish on China’s equities market following its roll back of Covid-related restrictions.

Foreign investment in Chinese A-shares reached 141.2 billion yuan in January, for a new single-month record. The last single-month record was seen at the end of 2021, when foreign investment into A-shares tapped 90 billion yuan. Since the start of 2023 foreign investment into Chinese A-shares has already exceeded 150 billion.

Leading US investment bank Goldman Sachs has expressed a bullish take on China’s A-share market. Goldman recently further lifted its 12-month target for the MSCI China Index to 85 points, which it had previously raised from 70 points to 80 points in January.

Figures from financial data provider Wind indicate that the latest closing price of the MSCI China Index was 68.61 points. In a recent note, Goldman Sachs said China’s economic recovery is helping to boost corporate profits, providing upward momentum to Chinese stocks with room for an increase of more than 20% by the end of the year.

According to Goldman Sachs, the theme for A-share rises will gradually shift from reopening to economic recovery, while growth momentum will mainly be tilted towards consumption. Goldman points out that the performance of the Chinese services sector still remains significantly below pre-pandemic levels in 2019.

Goldman has also lifted its growth forecast for the Chinese economy. It predicts that China’s four-quarter economic growth rate will average 6.5% in 2023, significantly higher than its 5.5% forecast from the end of November last year.

The accelerated recovery of China’s economy will also give succour to global economic growth. Driven by the accelerated recovery of China’s economy and the recovery of domestic demand by the end of 2023, the global economy is expected to grow by an additional percentage point this year.

The Chinese economy is seen having a direct impact on global economic growth by means of three channels, including domestic demand, international tourism demand and bulk commodity demand.

Goldman is far from the only US financial institution to become more bullish on the Chinese market.

On 15 February, the head of JPMorgan’s trading department said that the investment bank was planning to expand its international operations and views China as its biggest potential overseas market. A report from Fitch released in February forecasts that China’s economy will grow by 5% in 2023, for a sizeable hike compared to the 4.1% predicted in December last year. The upward revision is based on evidence that consumption and economic activity in China are recovering faster than initially expected.

The Chinese central bank’s financial data for January surpassed market expectations, with its total social financing (TSF) metric posting a significant rebound. In January, new renminbi loans hit a single-month record of 4.9 trillion yuan, for an increase of 922.7 billion yuan compared to the same period last year. Enterprise loans were the key driver of this growth, indicating that the production and operation activities of Chinese businesses are gradually seeing a return to normal.