Investor outflows from China jump as S&P cuts 2023 and 2024 economic growth forecasts

• EPRF Global said redemptions from Chinese equity funds surged to an 18-week high.
• Meanwhile, S&P Global cut its 2023 growth forecast on China's economy to 5.2% from 5.5%.

Investors are bailing on China as the world's second-largest economy continues to show signs of weakening.

According to EPFR Global, redemptions from Chinese equity funds surged to an 18-week high during the third week of June.

Meanwhile, other emerging-market equity funds saw gains. For instance, India saw the biggest weekly inflow since the first quarter of 2018, while Korean equity funds saw a one-year high, taking on over $1 billion.

That comes as S&P Global reduced its outlook on Chinese growth for this year and next. For 2023, the credit ratings agency now expects GDP to expand by 5.2%, compared with prior forecasts of a 5.5% increase. It also lowered expectations for 2024 growth to 4.7% from a prior view of 5%.

"China's key downside growth risk is that its recovery loses more steam amid weak confidence among consumers and in the housing market. A lack of major policy stimulus could accentuate that risk, but we expect a serious slowdown to trigger meaningful measures to contain any downside," S&P's report said.

China's economy saw a first-quarter bounce after zero-COVID policies were lifted in late 2022, but more recent data on exports, industrial output, the property sector, and investment show sharp deterioration.

But while retail sales have also been cooling, S&P noted that discretionary spending stood 21% higher than in 2019 in nominal terms, compared to April's 17.3%.

Still, calls for government support have grown, and the central bank began interest rate cuts earlier this month while Beijing reportedly weighs some stimulus measures. But S&P said the government appears likely to hold back on more aggressive actions.

"Growth data will be elevated year-on-year for the second quarter, compared with the low base of last year," S&P said. "Policymakers are aiming for an organic recovery from the pandemic and are keen to contain financial risk and leverage."