China’s equity bull run is getting a boost from the country’s wealthy individuals, fueling hope among local brokers that the liquidity-fueled rally has legs.
An index tracking the equities positions of Chinese hedge funds that manage over 10 billion yuan rose more than 8 percentage points to 82% in the week ended Aug 15, according to Bloomberg calculations of data from Shenzhen PaiPaiWang Investment & Management Co, a fund data provider. That’s the biggest weekly increase in about two years.
Separately, the number and combined size of newly registered hedge funds, which mostly invest in equities, both rose to the highest this year in July, data from the Asset Management Association of China show.
The expanded presence of hedge funds, which require a minimum investment of 1 million yuan, has the potential to lend the rally more momentum, given the perception that wealthy investors tend to be more patient and tolerant with losses than retail traders.
“The rally has been primarily driven by funds from high net worth individuals, while inflows from household savings remained slow,” said Fu Zhifeng, chief investment officer at Shanghai Chengzhou Investment Management. Low interest rates on fixed-income products, combined with relatively high stock returns, have pushed risk-seeking investors toward equities, he said.
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The world’s second-largest stock market has surprised observers with a stunning rally in recent months, aided by ample liquidity and bets on technology firms. Up over 9% this month, the benchmark CSI 300 Index is one of the world’s best performers, defying an economy still battling deflationary pressures and trade tensions.
Meanwhile, there are indications that the country’s retail investors have remained on the sidelines. New account openings in July at the Shanghai Stock Exchange, a popular measure of demand from such investors, were about one third of a peak in October.
A report dated Monday from Citic Securities Co highlighted that enthusiasm among high net worth individuals and corporate clients was “significantly higher” than other investors this time around. This group of investors usually have a long-term investment perspective and can tolerate certain price fluctuations, analysts including Qiu Xiang wrote in the note.
“This also implies the probabilities for the current rally to be short lived or broaden out are both low,” Citic’s analysts wrote. “Instead, the rally may be centred around companies in traditional industries with entry barriers and the ability to consistently deliver profits, as well as emerging industries with high-growth potential.”
