Foreign portfolio outflows from mainland markets are set to hit a monthly record, with investors rushing for the safety of U.S. dollars as global equities markets tumble.
As of Tuesday, the S&P500 index and the MSCI world price index <.MIWO00000PUS> have both slumped nearly 30% since Feb. 20, when coronavirus fears first gripped markets. By comparison, China's benchmark Shanghai index fell about 15% between mid-January and its trough in mid-March.
(Graphic: China stocks firmer relatively outperform as virus rocked world markets in the past month - https://fingfx.thomsonreuters.com/gfx/buzzifr/16/12/12/China%20stocks%20firmer%20relatively%20outperform%20as%20virus%20rocked%20world%20markets%20in%20the%20past%20month.png)
A key reason for the relative resilience of the A-share market is Beijing's effectiveness in controlling the virus outbreak and a peaking of infections on the mainland, analysts said.
Another is the hope for more fiscal and monetary policy measures to shore up demand as Beijing strives for a speedy recovery from a likely deep economic contraction in the first quarter.
Chinese policymakers have already implemented a raft of measures to support the economy.
(Graphic: China Feb producers prices fell back into deflation - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/9781/9781/China%20Feb%20producers%20prices%20fell%20back%20into%20deflation.png)
The measures are expected to include more spending by local governments on infrastructure, a sector that was used by Beijing to bolster growth during the 2008 global financial crisis.
It is essential that the authorities prop up the traditional infrastructure sector to shore up the economy, said Niu Chunbao, chief investment officer at Wan Ji Asset, a Shanghai-based private equity fund.
(Graphic: Investors chase China's infrastructure firms on stimulus hopes - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/9785/9785/Investors%20chase%20China's%20infrastructure%20firms%20on%20stimulus%20hopes.png)
Another reason for the more limited losses in Chinese stocks is their lower valuations.
A-shares are relatively cheaper while their Wall Street peers were at record highs before the slump, said Fu Yanping, analyst with China Galaxy Securities.
(Graphic: China stocks relatively less hit due partly to lower valuations - https://fingfx.thomsonreuters.com/gfx/buzzifr/16/13/13/China%20stocks%20relatively%20less%20hit%20due%20partly%20to%20lower%20valuations.png)
Foreign investors have, however, been heavy sellers in the A-share market in recent weeks, as tumbling global markets and a dash for dollars forced massive liquidation of stocks, bonds and emerging market currencies.
As of Friday, net selling by foreign investors via the Stock Connect scheme totalled about 70 billion yuan ($9.91 billion). That makes it likely March will see the biggest monthly selling since the launch of the scheme, which allows overseas investors convenient access to China's equities market.
Consumer stocks, one of foreign investors' heaviest exposure in the A-share market, suffered steep losses in the past month.
The outflows were exacerbated by a weaker yuan, which posted its worst week in seven months last week as the dollar surged.
Separately, Chinese funds that facilitate domestic investment in overseas stock and bond markets have been inundated by investors eager to buy on the cheap.
(Graphic: Foreign net selling via Stock Connect set for monthly record - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/9931/9931/Foreign%20net%20selling%20via%20Stock%20Connect%20set%20for%20monthly%20record.png)
(Graphic: China's consumer firms among most sold as foreign investors retreat - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/9933/9933/China's%20consumer%20firms%20among%20most%20sold%20as%20foreign%20investors%20retreat.png)
(Graphic: China's yuan weakens against U.S. dollar on cash crunch - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/9928/9928/China's%20yuan%20weakens%20against%20U.S.%20dollar%20on%20cash%20crunch.png)
(Editing by Vidya Ranganathan and Jacqueline Wong)
By Luoyan Liu and Andrew Galbraith