Concerns over China’s economic growth outlook and the risk of new tariffs imposed by the Trump administration have led foreign fund managers to rapidly withdraw capital from Chinese index stocks for the fifth consecutive week.
According to a report by Bloomberg, the FTSE China 25 Index ETF (FXI) saw a record $9.84 billion outflow last week, marking a five-week trend of consecutive withdrawals. The China Internet Index ETF tracking major Chinese tech stocks (KWEB) also experienced a $7.1 billion outflow during the same period.
Investors are skeptical that Beijing’s stimulus measures can effectively boost consumer spending, and the pressure on the Chinese stock market has been growing in recent weeks. Additionally, President-elect Trump’s threats to increase tariffs on China and his cabinet picks have dampened market sentiment.
Andy Wester, portfolio manager at Sandia Investment Management, told Bloomberg that Western investors currently do not see enough signs of improvement in China’s economic growth data or favorable government information for businesses in the short term.
Especially, last week, Chinese tech stocks listed in Hong Kong performed poorly as investors reduced their risk exposure before earnings. A $9.5 billion large-cap Chinese stock ETF saw a $315 million outflow last week, while MSCI China ETF experienced a $280 million outflow during the same period.
Ongoing pressure from tight monetary policies and geopolitical tensions casting shadows on corporate profit prospects have made the market overall more cautious towards the Chinese stock market.
Morgan Stanley strategists have reduced the weight of the Chinese stock market in the Asia-Pacific region, and Goldman Sachs has lowered its target for the MSCI China Index to reflect a deteriorating macro backdrop.
As investors reevaluate the risks facing the world’s second-largest stock market, the MSCI China Index has dropped 16% from its recent high in early October.
Wester noted, “Any direct decline in the Chinese stock market could be due to tariff anxieties.”
Investors remain optimistic about Trump’s plans to implement tax cuts and deregulation post-inauguration, which has also dampened interest in risk assets to some extent.
Beijing released its latest economic data last week. UBS lowered its forecast for China’s 2025 economic growth, stating that China’s economy will grow “approximately 4%” in 2025, with a “significant slowdown in pace” expected in 2026.
The bank further indicated that the incoming Trump administration is expected to implement additional tariffs on most Chinese imports in a “phased” manner starting from the second half of next year.
This marks the second time this year that UBS has revised its growth targets concerning the Chinese economy.
Malcolm Dorson, Senior Portfolio Manager at Global X Management, told Bloomberg, “What Beijing is giving us is more like a Band-Aid than a tonic. Overall, there will be more meetings and more stimulus measures in the future, but the market is running out of patience.”
On Monday, with Chinese and Hong Kong stock indices bouncing back from last week’s sell-off, led by the financial sector, the market saw some relief.