Global fund managers are putting more money on Chinese health care and infrastructure-related stocks, even as they retreated from the onshore market at the fastest rate on record amid the worsening coronavirus pandemic.
Shenzhen Mindray Bio-Medical Electronics and Wuxi AppTec were among the companies that attracted inflows this month, according to Citic Securities, China’s biggest stock brokerage. Machinery and cement manufacturers also gained favour during the sell-off that sank more than 30 global stock benchmarks into bear-market territory.
The choices show how managers are adjusting their portfolios in search of winners amid global efforts to contain the Covid-19 disease, as well as growing expectations that China will step up investments in roads, bridges and wireless networks to shore up faltering growth.
Chinese authorities are loosening the lockdown in the epicentre of Hubei province from next month, after allowing some factories and businesses to reopen in signs the crisis is abating.
“In the long turn, there will be an acceleration in building up the software and hardware in the public health system,” said Luo Jiarong, an analyst at GF Securities in Shanghai. “There’s increasing awareness among the public” after this episode, he added.
Foreign fund managers were net sellers of 70 billion yuan (US$9.9 billion) worth of Chinese shares this month through the Stock Connect programme. The cumulative outflows in the month through March 23 already marked their fastest retreat since the programme was introduced in 2014, according to Wind data.
Shenzhen Mindray is China’s biggest medical-equipment maker whose line-ups include ventilators, according to its website. Its stock has risen 7.2 per cent this month and more than doubled over the past year. Reports suggest a shortage of ventilators worldwide as Covid-19 cases surged.
Shanghai-based Wuxi AppTec provides research and development and manufacturing facilities for pharmaceutical and biotech companies to advance discoveries and treatment for diseases. Its shares fell 15 per cent in March, trimming its 12-month gain to 44.5 per cent.
The viral outbreak from late last year could not have come at a worse time for global money managers, who began loading up on Chinese equities around the same time on the promise of inclusion or wider representation of yuan-denominated stocks in major stock indexes. They held 1.27 trillion yuan of stocks at the end of February, according to Citic Securities.
They have since dumped some of their favourite picks such as financials, consumer stocks and electronics makers during the March exodus, Citic Securities said. Ping An Insurance Group, household appliances maker Midea Group and China Merchants Bank bore the brunt of selling, it said.
China saw a historic slump in economic activity amid manufacturing and transport paralysis. Industrial production, fixed-asset investment and retail sales recorded declines in the January-to-February period while industrial profits crashed and banks brace for bad-debt blowout.
Apart from health care-related names, other actively traded stocks in March included Sany Heavy Industry, the nation’s biggest engineering machinery producer, and cement manufacturer Anhui Conch, according to Stock Connect data.
Beijing is expected to ramp up infrastructure spending to jump-start the sliding economy, with 5G technology and artificial intelligence among the likely focus of investment, according to China Merchants Securities.
Foreign fund outflows will probably slow and be reversed early next month, according to Citic Securities, with policymakers injecting massive liquidity into the markets and unveiling stricter virus containment measures worldwide.