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Daisy Wu

Foreign investors are expected to keep adding to their China A-share holdings, though the pace of buying is likely to slow from the surge in the first half of the year, according to a UBS analyst.
“We still expect net inflows in the second half, but the pace will be somewhat slower than in the first half,” said Meng Lei, China equity strategist at UBS Securities, at UBS’s annual China A-share strategy conference in Shenzhen on Tuesday.
Foreign appetite for A shares – domestic shares of mainland companies denominated and traded in yuan – hit a record in the first half. Overseas holdings reached more than 4.4 trillion yuan (US$654 billion) by the second quarter, the highest level on record, according to Meng.
Global fund managers aggressively expanded positions, with holdings under qualified foreign institutional investor scheme surging 87 per cent in value to 272.8 billion yuan by the end of June as buyers piled into companies tied to the artificial intelligence supply chain and green energy, according to financial data provider Wind.
The tech narrative and A shares’ unique, self-sufficient industrial chain are very attractive to global investors
Meng Lei, UBS Securities
However, analysts said several macroeconomic headwinds were tempering foreign capital inflows into onshore bourses.
Most of the second-quarter buying was concentrated in technology stocks, tracking swings in global AI sentiment, Meng said.
As tech shares pulled back in the third quarter, debate over the sector’s valuations intensified overseas, making international funds more cautious.
Rising long-term US Treasury yields – the anchor for global borrowing costs – are also weighing on sentiment, with the 10-year yield standing at around 4.75 per cent at the end of August.
“That could make some investors less inclined to allocate to emerging-market equities,” Meng said. “A shares are part of that universe.”
Despite these pressures, he said he expected net inflows to persist, pointing to China’s push for technological self-sufficiency as a key structural support.
“The tech narrative and A shares’ unique, self-sufficient industrial chain are very attractive to global investors,” he said.
The yuan’s ongoing strength is another major draw. Market consensus pointed to further appreciation over the next 12 months, Meng said, which would directly boost the total returns for foreign holders of yuan-denominated assets.
Beyond hardware-focused tech stocks, Meng flagged Chinese exporters and high-end manufacturers as prospective targets for overseas capital.
“Many of China’s high-end manufacturers have begun going global, and whether in terms of brand recognition or profit contribution, they are already at the global forefront,” Meng said.
At the same time, he said a rotation into consumer stocks – a perennial favourite among foreign investors between 2019 and 2021 – was possible but not yet under way.
That rotation would likely require “clearer signs of rising household wages and a broader stabilisation across the domestic real estate market”.
Beijing unveiled a fresh package of measures in late August to support the property sector, including structural reforms to prioritise completed-home sales over pre-sales.
Meng said the property market remained “in a window of observation and verification”.


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Overseas capital in yuan-traded Chinese stocks faces cooling, as tech sentiment, US yields and yuan strength steer the next phase


Overseas capital in yuan-traded Chinese stocks faces cooling, as tech sentiment, US yields and yuan strength steer the next phase.


Foreign investors expected to eye more China A shares – but pace set to ease: analyst

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Overseas capital in yuan-traded Chinese stocks faces cooling, as tech sentiment, US yields and yuan strength steer the next phase

Overseas capital in yuan-traded Chinese stocks faces cooling, as tech sentiment, US yields and yuan strength steer the next phase