M UpdateChina Quantitative Strategy | Asia PacificFlows & Positioning on A-shares Among Offshore FundsActive long-only managers have reduced their A-shares positions YTD via selling Biotech, Software, and Semis amid elevated market volatility. Yet, northbound stock connect program recorded net inflows in Feb MTD after six consecutive months of outflows. Hedge funds and passive funds led the buying. 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 Exhibit 2 : Monthly net fund flows of stock connect northbound program ($bn) 1.4 3.8 1.6 1.3 3.1 3.2 3.3 4.1 3.2 1.8 1.9 1.9 5.4 (0.4)1.8 6.3 9.1 4.6 4.4 5.2 4.0 (1.8)6.8 2.3 9.0 9.0 0.7 (3.5)(9.5)6.7 2.3 1.8 9.1 4.5 8.6 11.2 5.5 1.7 (9.7)6.4 4.2 7.2 1.2 (0.3)(4.8)1.2 8.8 10.1 6.2 6.4 2.9 4.5 9.5 1.9 1.2 4.2 3.8 4.7 2.9 14.8 2.7 0.6 (7.1)0.7 1.8 10.7 (3.4)1.9 (1.6)(7.9)8.5 6.2 20.9 1.4 5.2 (2.2)(1.7)2.0 6.7 (12.3)(5.1)(6.4)(0.2)(1.8)(2.0)2.9 (15.0) (10.0) (5.0) - 5.0 10.0 15.0 20.0 25.0Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-24 Source: Bloomberg, Morgan Stanley Research; data as of February 8, 2024 Exhibit 4: China portfolio active weights by share classes managers among offshore active long-only managers2.1%1.5%2.0%3.3%3.6%2.8%2.8%2.8%2.8%2.3%3.4%4.6%5.2%5.2%5.7%7.9%12.1%8.7%5.4%-15%-16%-14%-12%-13%-12%-13%-13%-11%-11%-13%-11%-13%-11%-11%-12%-14%-10%-9%13%15%12%9%9%9%10%10%9%9%10%6%8%6%5%4%2%2%4%-20%-15%-10%-5%0%5%10%15%20%Dec 20Mar 21Jun 21Sep 21Dec 21Mar 22Jun 22Sep 22Oct 22Dec 22Mar 23Jun 23Jul 23Aug 23Sep 23Oct 23Nov 23Dec 23Jan 24China AChina HADR Source: MorningStar, FactSet, Morgan Stanley Research; data as of January 31, 2024Top 5 A-shares holdings among active long-only managers remained to be Moutai, Midea, SZ Mindray, CATL, and SZ Inovance. Their active weights in foreign managers' portfolios vs. MSCI China all increased YTD. On the flip side, China Merchants Bank, Zhejiang Sanhua, WuXi AppTec, Jiangsu Hengrui, and Anjoy Foods were cut weights the most. Overall, our data suggests that active managers were reducing active risk in China - they used to OW onshore vs. offshore to gain alpha, but these positions were unwound quickly in January. Yet, northbound inflows have been strong in February MTD, led by hedge funds buying. We will monitor it closely.Exhibit 1:Top 30 A-shares holdings and their active weights vs. MSCI China A, being owned by the large-scale offshore mutual funds we trackRankRank Change YTDRank Change FY23TickerCompany NameGICS Industry GroupUnderlying Market Values ($m)Weights as of 2/16/2024MSCI China A Index WeightsActive WeightsWeights as of 12/31/2023Active Weight Changes YTD(% of AUM)Weights as of 12/31/2022Active Weight Changes FY23(% of AUM)1----600519...
