China: Foreign inflows remain resilient in July – Nomura

Foreign portfolio inflows into China were still resilient in July, with northbound equity inflows through the Shanghai/Shenzhen Stock Connect totalling USD4.8bn m-o-m (peak of USD8.5bn in May), notes the research team at Nomura.

Key Quotes

“Besides the second phase of MSCI A-shares inclusion taking effect on 3 September, there are also some market expectations that the MSCI could further increase the A-shares partial inclusion factor to 15-20% in 2019, which would help to sustain foreign equity inflows in to China.”

“Foreign bond holdings also rose by USD8.7bn in July after the large USD13.6bn increase in June (data from the China Central Depository & Clearing Co), and we believe these have been supported by central bank diversification into RMB assets and real money allocation on expectations of bond index inclusions. That said, similar to local outflows, we believe these foreign inflows could slow and/or FX hedges rise, if RMB depreciation expectations are allowed to build.”