China to Nurture Stock Rally by Masking Live Foreign Flows Data

May 12, 2024

3 minutes read

(Bloomberg) — China is set to switch off a live feed of foreign flows for stocks as early as Monday, the latest policy move to shore up confidence by removing a potential source of negative data.

Most Read from Bloomberg

The Shanghai and Shenzhen exchanges plan to cease displaying real-time figures on purchases or sales of local stocks through trading links with Hong Kong. Instead, the two bourses will provide the turnover details on a daily basis, along with the 10 most-traded stocks via the northbound channel.

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

“There are surely some funds out there that factor the short-term flows of northbound investors into their models, so it could lead to a lower trading frequency for some without the real-time data,” said Chen Shi, fund manager at Shanghai Jade Stone Investment Management Co. “But to value investors it doesn’t really matter if they release the figure monthly as intraday is mostly just noise.”

Intraday readings showing foreign outflows were partly blamed for worsening sentiment among Chinese retail investors, who still dominate local trading, during several episodes of intense selloffs over the past year. Some participants had urged the authorities to obscure such figures.

When the two bourses announced their decisions on April 12, they said the changes will take effect “in about a month,” without giving a precise timetable. Shanghai and Shenzhen stock exchange officials in charge of media relations didn’t immediately respond to requests seeking comment.

The Hong Kong Stock Exchange said in a filing on Saturday that the adjustments to market data including real-time turnover and daily quota balance for stock connect will be implemented starting Monday.

The world’s second-biggest stock market has rallied since February, after Beijing introduced a slew of rescue measures from wider trading curbs to purchases by state funds and naming a new head for the securities regulator. The rebound has gained more traction in recent weeks, buoyed by fresh signs of economic recovery and the return of foreign money.

Read: Chinese Stock Rebound Has Many Hallmarks of More Enduring Rally

Northbound investors delivered a third straight month of buying on a net basis in April, the longest such stretch in a year which included a record daily purchase. The inflows have continued this month with another 4.8 billion yuan ($664 million), which means overseas funds have added back more than half of what they had sold since August.

While geopolitical tensions, including Washington’s anticipated decision to impose tariffs on Chinese products like electric cars, may again hurt foreign sentiment, global investors’ presence in China’s stock market remains small. In April, the daily average value of onshore stocks traded via the exchange links with Hong Kong accounted for around 15% of the total turnover of the mainland stock markets.

In a sign that Chinese investors have largely shrugged off the upcoming loss of live northbound data, the benchmark CSI 300 Index has risen more than 5% since the change was announced.

“Northbound is not the key flow factor in this market, and the intraday figures are more a reflection of sentiment rather than changes to fundamentals during the day,” said Yang Bo, chief investment officer of Shenzhen Zhuode Investment Management Co. Ending the live feed “should help avoid volatility brought on by these mood swings and is beneficial to the market’s healthy long-term development,” he added.

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

(Adds Hong Kong exchange announcement in seventh paragraph.)