China fund inflows spike after reform hope builds

Chinese equity funds saw inflows spike last week after investors took confidence from signs that the world’s second largest economy is committed to reform.

Fund flow data provider EPFR Global says inflows into Chinese equity funds reached a 45-week high in the week ending 27 November following the unveiling of a new economic framework after the conclusion of the country’s Plenum.

EPFR Global says: “China equity funds came into 2013 on the back of their biggest quarterly inflow in over a decade and looked to have broken decisively with their Bric peers. But questions about China’s export story, the trajectory of its property markets and the health of its financial sector saw over $11bn pulled out of China equity funds between March and September.

“Lately, however, hopes that China’s new leadership is committed to reforming the world’s second largest economy have translated into four straight weekly inflows.”

The comprehensive reform plan released after the Plenum helped the Chinese stockmarket to rebound in the second half of November by easing investors’ concerns about a slowdown in the economy. The plan show stronger determination among China’s leadership for structural reforms, including a new role for market-driven resource allocation, reform of state-owned enterprises and anti-corruption measures.

Chinese funds have managed to shake off most of the problems that have dogged emerging markets over the course of the year. FE Analytics shows the average fund in the IMA China sector rose 11.1 per cent between the start of 2013 and 3 December, outperforming the 3.6 per cent loss in the MSCI Emerging Markets index but lagging the 21.7 per cent gain in the MSCI World.

Last week’s inflows were not enough to halt the ongoing outflow streak from emerging market equity funds, which has been running for five weeks and pushed year-to-date redemptions to over $20bn. Investors continue to move towards developed market equities, EPFR Global notes, which have captured almost $350bn over the year to date.

Overall, investors committed $13bn to EPFR Global-tracked equity funds during the week ending 27 November while bond funds captured $1.2bn and a net $2.3bn was taken out of money market funds.

Looking at individual countries, Japanese equity funds rebounded, Italian equity funds took new money for the ninth straight week after ex-prime minister Silvio Berlusconi was expelled from the Senate and Russian bond funds saw their biggest weekly inflow since the current financial crisis began.