Refinitiv data shows foreigners have sold a net $734 million worth of mainland shares between Nov 1-10 via Stock Connect, a key cross-border link between the mainland and Hong Kong exchanges, after selling $8.5 billion in the last month.
According to the Institute of International Finance, Chinese bond markets have suffered a total outflow of $105.1 billion over nine months, while Chinese stock portfolios lost $7.6 billion in October, the most since March.
That was in contrast to the inflows into emerging markets in October: their stock and bond markets received $9.2 billion last month.
Analysts said the massive selling last month was due to concerns that President Xi Jingping's new leadership team would adopt more ideologically driven policies, and give less priority to economic growth.
Graphic: Foreign flows into Chinese stocks via Stock Connect - https://fingfx.thomsonreuters.com/gfx/mkt/mopakmaompa/Foreign%20flows%20into%20Chinese%20stocks%20via%20Stock%20Connect.jpg
"One key outcome that investors came away with from the 20th Party Congress was that there seems to be less opposing voices within the government, and an even higher concentration of power," said John Lau, head of Asian equities at investment firm SEI.
"Unless the government actively communicates policies to promote growth, the outflows will likely continue."
Refinitiv Lipper data showed China-focused equity funds faced an outflow of $2.95 billion last month, their third consecutive net sales.
The concerns over China's faltering recovery were exacerbated this week after data showing exports and imports contracted in October, hit by the COVID-19 restrictions and falling external demand. Slowing exports are likely to hurt the weak yuan further, analysts said.
The yuan has fallen about 12% against the dollar so far this year.
Graphic: China's exports, imports, and performance of yuan against the dollar this year - https://fingfx.thomsonreuters.com/gfx/mkt/znvnbdambvl/China's%20exports%20imports%20and%20performance%20of%20yuan%20against%20the%20dollar%20this%20year.jpg
"From an international investor's perspective, a weakening yuan means poorer returns of Chinese assets when translated in the home currency, which is further damaging sentiment and increasing outflows," said Lorenzo La Posta, portfolio manager at Momentum Global Investment Management.
La Posta said he would increase the exposure to Chinese equities, given the valuations are at levels not seen since the 2015 lows.
MSCI China's forward 12-month price-to-earnings ratio was at 8.1 at the end of October, much below a 10-year average of 11.3.
Graphic: Breakdown by country for Asian companies' estimated profit growth in 2022- https://fingfx.thomsonreuters.com/gfx/mkt/lbpggreyzpq/Breakdown%20by%20country%20for%20Asian%20companies'%20estimated%20profit%20growth%20in%202022.jpg
The Shanghai Composite Index declined for a fourth consecutive month in October, taking this year's losses to above 15%. The index has risen 7.2% this month, helped by some hopes the government will open up the economy soon.
However, Chetan Seth, equity strategist at Nomura, said investors have been caught wrongfooted many times in the past attempting to "front-run" easing in the zero-Covid policy.
"As the market consensus is forming around the potential reopening of the Chinese economy in first quarter of 2023, it is likely that once again investors will attempt to "front run" China's reopening."
Graphic: Monthly flows into China-focused equity funds - https://fingfx.thomsonreuters.com/gfx/mkt/zdpxdybgopx/Monthly%20flows%20into%20China-focused%20equity%20funds.jpg
(Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan & Simon Cameron-Moore)
By Patturaja Murugaboopathy and Gaurav Dogra
