Chinese inflows consumed nearly all of the $12.1 billion that poured into emerging market equities in one week of January 2024. The investors appear to be driven by long-term contrarian value plays and not to be investing in fundamentals. This record inflow will mark either the turnaround in China's equities, or one of the final gasps of a vanquished and once outstanding investment case.
Emerging markets experienced a historic $12.1 billion inflows into equities the week of January 24. To give an idea of the imbalance of the flows, of the $12.1 billion that rushed into emerging equities during the week through January 24, $11.9 billion was allocated to Chinese shares.
Nothing has changed fundamentally about China, instead the driver of interest is simply that the shares have fallen too low for investors to continue to ignore. The last two years have been difficult for Chinese equities and some investors are betting that this is shaping up to be the top contrarian bet for 2024.
The CCP has helped encourage the flows through modest stimulus and other measures taken such as recently limiting investment in foreign markets by its citizens. That stimulus hasn't been greater shows that the CCP may be running out of tools in its "financial toolbox". China is loaded with debt and facing high interest rates, a stumbling economy isn't helping.
China has contributed 41% of the world's growth in the past ten years, twice the 22% contribution from the United States and four times that of the Eurozone. An era of Chinese malaise will be difficult for international financial firms to accept given the reliance many firms have on continued meterotic growth rates out of China. Most of these firms have deep financial entanglements in China and stand to lose if China falls from its pedestal.