(Bloomberg) -- Overseas foreign funds are increasingly betting on a China stock revival, but sentiment at home is one of caution amid stop-start Covid-19 restrictions.
China’s benchmark CSI 300 Index has rebounded less than 5% since a mid-March rout, while the Hang Seng China Enterprises Index -- a gauge of large Chinese firms listed in Hong Kong -- has jumped 18%. The underperformance of mainland shares has come even as the government promised various incentives for sectors including auto and infrastructure, while keeping macro policies loose.
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“Probably for the first time in our recent memory, we note that onshore investors appear somewhat more cautious than offshore investors,” Kinger Lau, a strategist at Goldman Sachs Group Inc (NYSE:GS)., wrote in a note dated Monday. The rare divergence could be due to “ongoing targeted and sporadic lockdowns in Shanghai and Beijing,” Lau wrote.
Various indicators suggest muted risk appetite onshore, even as a legion of global banks from Morgan Stanley (NYSE:MS) to Bank of America (NYSE:BAC) have ramped up bullish rhetoric in recent weeks. Jefferies Financial Group Inc. on Monday said they are more upbeat on China stocks than before due to supportive policies.
Here are some charts illustrating the relatively calm sentiment on the mainland:
The Hang Seng Stock Connect China AH Premium index, which measures the price premium or discount of A-shares to H-shares, has been fluctuating within a range since peaking in mid-March. Dual-listed companies’ onshore shares are about 41% more expensive than their Hong Kong-listed shares, versus over 50% in March, Bloomberg data shows.
The number of new investors in China’s onshore stock market totaled about 1.2 million last month, the least since October and the lowest for the month of May going back to 2019, according to China Securities Depository and Clearing Corp. After a brief spike in March, when policy makers pledged to bolster the economy and stabilize markets, investors’ enthusiasm to open stock accounts quickly cooled.
Margin financing, which allows equity traders to borrow funds to buy stocks, has steadily declined this year, Bloomberg data shows. The gauge, an indicator of risk appetite on the mainland market, hasn’t seen any meaningful recovery after reaching a trough in April.
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