Foreign investors may be turning bullish on China again as bond purchases jump
- Foreign investors bought up the largest amount of Chinese yuan bonds in four months, Bloomberg reported.
- It could be a sign of improving sentiment on China after it sank earlier this year amid economic woes.
Foreign investors may be turning bullish on China again after sentiment sank earlier this year amid sign of economic stagnation.
Last month, offshore investment in China's yuan-denominated bonds hit 42.2 billion yuan ($5.8 billion), the most in four months, according to data compiled by Bloomberg.
That includes a net $1.7 billion in Chinese government bonds, and more than $4 billion in policy bank bonds, which are issued by the China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China.
The uptick suggests changing attitudes among global funds, who have largely stepped out of the Chinese market. Capital flight has been a dominant theme in 2023, with investors discouraged by China's low consumer activity, lackluster production, a collapsing property market, and geopolitical head-butting.
While the latest batch of data has been mixed, a wave of support from Beijing may have helped sway markets, including a rare mid-year budget adjustment and the increased issuance of sovereign debt, intended to provide stimulus for local governments.
The measures were cited by the International Monetary Fund, which raised its growth outlook on China recently. Meanwhile, further support is projected in the coming months, including investments in manufacturing and infrastructure, a Barclays note highlighted.
Yuan bonds are also benefiting from a rising bet that the Federal Reserve is done tightening monetary policy. Previously, the competitiveness of Chinese debt was dampened by high US rates.
But despite October's increased inflows, overseas investment in yuan bonds is still around 20% below last year's levels, according to Bloomberg.
Concerns remain in areas such as geopolitics, especially as this week's meeting between Chinese President Xi Jinping and US President Joe Biden failed to meaningfully uplift markets.
Though both leaders signaled a desire to tone down the growing antagonism, the Chinese CSI 300 Index fell nearly 1% Wednesday, given the lack of clear-cut progress.