Foreigners cut Chinese debt and dumped stocks in July – IIF

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A Chinese yuan note is seen in this May 31, 2017 illustration photo. REUTERS/Thomas White/

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SHANGHAI, Aug 4 (Reuters) – Foreign investors continued to reduce their holdings of Chinese bonds in July and dumped stocks for the first time in four months, according to a report from the Institute of International Finance (IIF).

Emerging markets recorded a fifth straight month of portfolio outflows, setting the longest such streak on record since 2005, as global recession risk, inflation and a strong dollar drained liquidity, the report showed. report released Wednesday. Read more

Chinese debt saw outflows of around $3 billion last month, while $6 billion came out of other emerging markets, the IIF estimated.

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If confirmed by official data, it would mark the sixth consecutive month of foreign outflows from China’s $20 trillion bond market.

Over the same period, China’s stock market saw $3.5 billion in foreign outflows, compared to marginal inflows of $2.5 billion in other emerging markets, the IIF added.

The benchmark CSI 300 index (.CSI300) fell 7%, falling weekly in July, as national COVID-19 surges, real estate issues and global recession risks weighed.

“China A-shares have seen a generally weaker trend since July under domestic and foreign influences,” the China International Capital Corporation (CICC) said in a note.

Data showed the world’s second-largest economy slowed sharply in the second quarter, missing market expectations with an increase of just 0.4% year-on-year.

While the effects of the war in Ukraine have still not faded, Sino-American tensions over Taiwan have escalated as Speaker of the United States House of Representatives Nancy Pelosi visited the self-governing island claimed by Beijing.

“For the coming months, several factors will influence the dynamics of flows, among which the timing of the peak of inflation and the outlook for the Chinese economy will be the focus,” the IIF said.

Foreign investors have reduced their holdings of Chinese bonds since February as divergent monetary policies have kept Chinese yields below their US counterparts.

The People’s Bank of China eased policy to help a COVID-hit economy, while the US Federal Reserve raised rates to tackle soaring inflation.

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Reporting by Jason Xue and Brenda Goh; Editing by Rashmi Aich

Our standards: The Thomson Reuters Trust Principles.

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