An investor looks at his mobile phone in front of a board showing stock information at a brokerage office in Beijing, China
Reuters

KEY POINTS

  • The domestic ETF market saw significant disruptions with the inflow of $2billion in January
  • More than half of the money went to US stocks while another $204 million flocked to Japan
  • The renewed enthusiasm for foreign ETF signals investors' confidence crisis in the sagging local stock market

Overseas equities are seeing an unprecedented influx of Chinese money as investors look for an exit from China's sagging stock market.

33 onshore exchange-traded funds (ETFs) that track foreign benchmarks, excluding Hong Kong, saw an inflow of $2 billion in January, which is believed to be a sign of investors losing faith in the local share market, Bloomberg reported. This record rush of $2 billion is the biggest monthly tally in Bloomberg data from late 2020.

Over 50% of the sum found its way to US stocks. Another $204 million surged into the Japanese market.

The renewed enthusiasm for foreign ETFs is believed to be part of a broader shift away from China due to the country's economic gloom. China's COVID reopening recovery has been disappointing to investors, thus leading to a confidence crisis in the Chinese market.

The record $2 billion rush into foreign stock ETFs caused significant disruptions in the Chinese ETF market. The influx saw prices, in some cases, surge up to 40% more than the value of the underlying assets. Frequent trading halts and large price swings were also triggered.

"Investors are voting with their feet, and that's all there is to say about this trend," Peng Hong, fund manager at Shenzhen Zhichang Fund Management Co, was quoted saying. "Chasing these funds at a high premium is risky, but it's choosing the lesser of two evils. U.S. stocks could see a correction taking you to ankle-deep in losses, but if you bottom fish onshore stocks, you are likely to be neck-deep."

China