M UpdateChina Quantitative Strategy | Asia PacificPositions of Active Long-only Managers in China/HKDecember marked the worst monthly net outflows of China/HK equities in 2023 and the third-largest monthly outflows in history. Both US and EU active managers have accelerated selling in order to meet redemptions and deepen the market underweight.Morgan Stanley Asia Limited+Gilbert Wong, CFAQuantitative Strategist Gilbert.Wong@morganstanley.com +852 2848-7102 Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Jason Ng, CFAQuantitative Strategist Jason.Dl.Ng@morganstanley.com +852 2848-8845 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Voting will open early January 2024. Exhibit 2 : Long history of China/HK equities fund flows since 2018 Fund Outflows (US$m) due to Regional Funds RebalancingTotal Outflows (US$m) from China/HK Equities (15,000) (12,500) (10,000) (7,500) (5,000) (2,500) - 2,500 5,000201820192020202120222023 EU-domiciled Funds US-domiciled Funds (20,000) (10,000) - 10,000 20,000 30,000 40,000 50,000 60,000201820192020202120222023 EU-domiciled Funds US-domiciled Funds Source: EPFR, Morgan Stanley Research; data coverage: Jan 2018 to Dec 2023 Exhibit 3 : Net fund flows of China/HK equities from Oct 2022 to Dec 2023 (4,000) (3,000) (2,000) (1,000) - 1,000 2,000 3,000 4,000 5,000 6,000Oct 22Nov 22Dec 22Jan 23Feb 23Mar 23Apr 23May 23Jun 23Jul 23Aug 23Sep 23Oct 23Nov 23Dec 23EU-domiciled FundsUS-domiciled Funds-25,000-20,000-15,000-10,000-5,00005,000Oct-22Nov-22Dec-22Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23Cum. net fund flows ($m) Source: EPFR, Morgan Stanley Research; notes: universe of fund flows here is referring to all US and EU-domiciled active mutual funds. December is known to be a redemption season of active funds, but 2023 was much tougher than usual, according to EPFR – US$2.0bn of monthly outflows from China in December were due to redemptions, vs. the 13-year average of US$1.0bn ( Exhibit 11 ), while US$1.8bn of selling was due to managers' rebalancing out of the country. EU managers are catching up to align their underweight on China with their peers in US ( Exhibit 1 ). In terms of positioning changes within the country, active managers were rotating from Value to Growth, and from Consumer to Internet throughout 2023. Please see Exhibit 4 & Exhibit 5 for details.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analyst...
