After years of drawing foreign capital as an attractive investment destination, China is now facing de-globalization, where investors gradually withdraw their money from the world’s second-largest economy.
Investors cite multiple justifications for their withdrawals, from the strict zero-Covid strategy to unpredictable regulatory policies or battered real estate market, even Xi’s coziness with Putin.
Matt Smith of Ruffer LLP, a $31 billion investment firm, told Bloomberg that “the supertanker of Western capital is starting to turn away from China.”
The firm has shut down its Hong Kong office after a decade due to shrinking demand.
He added: “It’s just easier to put China aside for now when you see no end in sight from Covid Zero and the return of geopolitical risk.”
For the last couple of years, China has launched a series of crackdowns on several profitable industries such as tech, real estate, or private tutoring, causing distrust and confusion among global investors about the regime’s goals. Investors have also increased their vigilance against Chinese assets after Russia invaded Ukraine and its zero-Covid policy that almost all countries had abandoned.
Bloomberg cited a report from EPFR Global saying that asset allocations to China among emerging-market equity funds fell to the lowest in three years.
Global investors are now no longer talking about when to buy Chinese assets but are more focused on how much exposure to reduce. Bloomberg reported that a London-based hedge fund had decreased its long Chinese positions to just one under pressure from U.S. clients. A Switzerland-based investment manager said some European pension funds and charities do not want to include China’s assets in their portfolios to avoid geopolitical and governance risks.
Bloomberg reported that during a recent trip to London, Citigroup’s Asia research team found that clients’ interest in China was “surprisingly low.” They say customers are interested in the Indian and Korean markets.
In recent months, global investors seem to stay away from the China market.
Bloomberg in early June reported that net outflow from offshore investors in Chinese stock markets reached a record 2.2 billion dollars for the first five months. To compare, China had about 32 billion dollars in net inflow last year, an average of 2.7 billion dollars net inflow monthly.
In addition, European and American investment firms also shared their pessimistic outlook about China’s market as many consider shifting their investment out of China.