China will encourage stock rally by masking real-time foreign flow data

(Bloomberg) — China is expected to turn off live streaming of foreign flows into stocks as early as Monday, in the latest policy move to bolster confidence by removing a potential source of negative data.

Bloomberg’s Most Read

The Shanghai and Shenzhen exchanges plan to stop displaying real-time figures on purchases or sales of local shares through commercial links with Hong Kong. Instead, both exchanges will provide daily trading volume details along with the 10 most traded stocks through the northern channel.

While authorities said this was in line with international practices, it also marked an attempt to limit the impact of data showing the sale of foreign funds on market sentiment. Chinese stocks have risen since the measure was announced, an indication that investors have taken the measure in stride and are focusing on positive catalysts, from attractive valuations to government efforts to ease a housing crisis.

“There are certainly some funds out there that consider the short-term flows of northern investors in their models, so this could lead to lower trading frequency for some without the real-time data,” said Chen Shi, fund manager from Shanghai Jade. Stone Investment Management Co. “But to evaluate investors, it doesn’t really matter if they release numbers monthly, as intraday is mostly just noise.”

Intraday readings showing foreign outflows have been partly blamed for deteriorating sentiment among Chinese retail investors, who still dominate local trading, during several bouts of heavy selling over the past year. Some participants urged authorities to hide such numbers.

When the two exchanges announced their decisions on April 12, they said the changes would take effect “in about a month,” without providing a precise timetable. Officials at the Shanghai and Shenzhen stock exchanges responsible for media relations did not immediately respond to requests for comment.

The Hong Kong Stock Exchange said in a statement on Saturday that adjustments to market data, including real-time trading volume and daily quota balance for share connection, will be implemented from Monday.

The world’s second-largest stock market has rallied since February after Beijing introduced a series of rescue measures, from broader trading restrictions to purchases by state funds and the appointment of a new head of the securities regulator. The recovery has gained more strength in recent weeks, driven by new signs of economic recovery and the return of foreign money.

The story continues

Read: The rally in Chinese stocks has many of the hallmarks of a longer-lasting recovery

Northern investors delivered a third straight month of net buying in April, the longest such stretch in a year that included record daily purchases. Inflows continued this month with over 4.8 billion yuan ($664 million), meaning that foreign funds recovered more than half of what they had sold since August.

While geopolitical tensions, including Washington’s early decision to impose tariffs on Chinese products such as electric cars, could again dampen foreign sentiment, the presence of global investors in China’s stock market remains small. In April, the average daily value of onshore shares traded through foreign exchange links with Hong Kong represented around 15% of the total turnover of mainland equity markets.

In a sign that Chinese investors have largely ignored the upcoming loss of real-time data heading north, the benchmark CSI 300 index has risen more than 5% since the change was announced.

“Northern direction is not the main flow factor in this market, and intraday numbers are more a reflection of sentiment than changes in fundamentals during the day,” said Yang Bo, chief investment officer at Shenzhen Zhuode Investment Management Co. “ it should help avoid the volatility caused by these mood swings and is beneficial for the long-term healthy development of the market,” he added.

–With assistance from Amanda Wang, Alice Huang and Neha D’silva.

(Adds Hong Kong stock exchange announcement in seventh paragraph.)

Bloomberg Businessweek Most Read

©2024 Bloomberg LP

Source