(Repeats for wider distribution)
* June draws China stocks' best foreign inflows for 2022
* Onshore markets bounce 20% from lows; hedge funds pare
* Broad policy seen supporting growth, unlike in the West
HONG KONG, June 29 (Reuters) - The latest easing of
coronavirus travel rules combined with other encouraging policy
signals have began luring some foreign investors back to Chinese
stocks, raising the chances that the market can sustain its
bounce after months of heavy selling.
As the S&P 500 is about to close its worst first half of any
year since 1970 and bonds have taken a thrashing, China's
beaten-down equity markets start looking like a shelter from a
global storm of runaway inflation, interest rate hikes, and
China's blue-chip CSI300 index is up about 20%
from April lows, as is the Shanghai Composite after
losses of more than 10% in the first quarter.
The gains, together with the relaxation of lockdowns and
signals that Beijing could ease up both on virus policies and
regulatory clampdowns, have tempted money managers, who were
quitting China en-masse in March, to return.
Those who were on the sidelines, "have shown some increase
in appetite for China in the past few weeks," said Elizabeth
Kwik, investment director of Asian equities at British asset
manager abrdn. "Some have chosen to add to their position."
Foreign investors bought a net 74.6 billion yuan ($11
billion) worth of China-listed shares in June so far, which is
set to be the biggest monthly inflow this year, according to
data from Refinitiv Eikon.
This week, travel and gambling stocks leapt as China halved
travellers' quarantine to one week.
Investors hope it is a sign Beijing could eventually ease
its draconian zero COVID-19 policy, and authorities are making
efforts to come good on promises to support the world's
"COVID zero policy has been mentioned as the biggest hurdle
facing investors as they look to understand China's current
policy focus," Morgan Stanley analysts said in a Wednesday
report. "These latest developments will help rebuild investor
confidence that economic growth is being prioritised."
Unlike the rest of the world, China has no inflation problem.
Coronavirus COVID curbs and the absence of massive
consumption-focused stimulus have kept demand soft and put a lid
on prices - allowing the central bank to ease policy while most
of its peers keep tightening.
Senior officials have also vowed to support capital markets
and growth and have eased a crackdown on once-hot sectors such
Shares in e-commerce giant Alibaba, which were
pounded through 2020 and 2021, have rallied 60% from a record
low in March.
J.P. Morgan analysts last Friday advised clients to add to
positions in China directly, a shift from earlier advice to keep
indirect exposure via commodities or other markets.
The market rebound is also helping improve the performance
of regional funds that stayed invested last year and through
March, when Western sanctions on Russia stoked fears China could
also become a target.
A Eurekahedge index tracking Greater China-focused hedge
funds with long-short strategies gained 1.1% in May, after
losing 13.6% in the first four months of 2022.
Anatole Investment Management Ltd, a Hong Kong-based firm
managing around $1.9 billion with its flagship fund, saw monthly
returns turn positive for May and extend in June after a 22%
drop in the first four months, people familiar with its
performance said. They requested anonymity because they are not
authorised to speak publicly. That was partly due to bets on
Chinese internet firms after Chinese authorities, concerned
about markets, signaled willingness to wind down a regulatory
crackdown of nearly two years.
When contacted by Reuters, the fund described this month's
expansion as significant and said Greater China remained its
Aspex Management, which manages around $7 billion, reported
positive returns in April and May, according to documents seen
by Reuters, trimming losses for the first five months of the
year to 14.4%. Aspex did not respond to queries.
There are still reasons to be cautious and June's $11
billion in equity inflows are modest against a tide that saw
roughly $50 billion in outflows from stocks and bonds over the
first quarter, according to the Institute of International
Investors worry Western sanctions on Russia could serve as a
blueprint for China, while the health of the property market,
once its growth engine, has been a concern ever since developer
China Evergrande defaulted on some debts last year.
State Street Global Markets Yuting Shao said the firm had
not returned to overweight on Chinese stocks, while Ewan
Markson-Brown a fund manager at CRUX Asset Management was
avoiding anything to do with real estate.
"The property market is still a big issue," he said.
Still, money is flowing again and sentiment has shifted.
The 20 biggest open-ended and exchange-traded funds traded
in Hong Kong with Greater China equities strategy all reported
positive returns last month and 17 of them grew their assets in
May, according to Morningstar data.
Paul O'Connor, head of the multi-asset team at Janus
Henderson in London, said China has had its "capitulation" and
now it was its chance to outperform.
"They have had a valuation reset and they don't have the
policy headwinds we have in other places where central banks are
draining liquidity and putting up interest rates."
($1 = 6.7025 Chinese yuan renminbi)
(Reporting by Xie Yu in Hong Kong. Additional reporting by
Gaurav Dogra in Bengaluru, Sujata Rao and Marc Jones in London.
Writing by Tom Westbrook
Editing by Tomasz Janowski)