ab22 February 2024Global Research and Evidence LabChina Equity Strategy4Q23 investor positioning update - most extreme in recent memory?Top 40 global funds holding in Chinese equities back to 2014 levelsOur tracking of the top 40 global funds (including both passive and active holdings) show that their total equity holding in China is at the lowest level in the last 10 years, on par with levels last seen in 2014 which was before the A-share inclusion in the MSCI indices. Looking at positioning of active foreign institutional funds, these have further reduced their China positions in 4Q23 with their average underweight positions at -2.9ppt vs -2.7ppt in 3Q23 and -2.4ppts in 3Q22. EM funds saw the most sell-down in the quarter and are now on average 6.6ppts underweight in China while global mandated funds also saw some sell-down and are now 1.8ppts underweight. The sectors that saw the most active foreign outflows in 4Q23 included online gaming, leisure, express delivery and solar while biotech, restaurant and education received the most inflows. A-share continued to see more foreign selling vs other markets with northbound outflows at US$8.3bn while foreign holding modestly increased in H-share, most likely due to ADR conversion. Southbound investors remained the main buyer in the HK market and bought US$6.4bn of shares in 4Q23 with healthcare and consumer discretionary the top bought sectors. 30 more active funds shedded all of their Chinese equity positions this quarterOur tracking of c.1400 active foreign institutional investor positioning showed that their China underweight position has deteriorated from 2.7ppt in 3Q23 to 2.9ppt in 4Q23, with the trend likely to have further deteriorated in January 2024. Out of these funds, c.380 funds no longer have Chinese equities in their portfolio as of 4Q23 (totalling AUM of US$363bn) vs 350 in 3Q23 with 12 exiting in 4Q23 due to fund shutdown. Over the course of 2023, 94 funds shedded their China positions in entirety with 36 of these due to fund shutdown. For the remaining 58 funds, 36 funds have cleared out their China positions at some stage during the last 4 years but have subsequently bought back. Passive funds have been the main buyers for Chinese equity in 2023 with total ETF inflows of c.$US66bn. Anecdotally it seemed redemption pressures were the most acute recently for onshore mutual funds, followed by EM mandated funds in 4Q. Domestic and foreign institutional investors sold more A-share than H-share/ ADR this quarterForeign active institutional investors reduced their holdings by 0.9ppt in the ADR market while added their HK stake by 0.4ppt in 4Q23, perhaps due to some conversion from ADR's into HK listed names. Selling from foreign strategic investors also eased this quarter with Softbank for example recently indicating that it is no longer looking to further sell...
