The Chinese stock market

The Chinese stock market has been rising over the latest month, due to the positive news surrounding the US-China trade negotiation. However, the investors are not only optimistic about the Chinese stock market at the moment, some international investors have also been interested in the Chinese stock market for a relatively long period of time. There has been a nearly $17bn inflow via the stock connect corridor with the HK since the launch of the programme in November 2014.

There is an interesting article on FT (https://www.ft.com/content/d008122c-3e56-11e9-b896-fe36ec32aece) written by Fabiana Fedeli (global head of fundamental equities and portfolio manager of emerging market equities at Robeco) explaining why overseas investors are optimistic about the Chinese stock market. Fedeli gives her explanatins in her article. First,  the opinions about the Chinese stock market future performance are very divisive. Secondly, foreign investors see the Chinese stock market from a global aspect while many Chinese investors see the Chinese stock market in a vacuum. Foreign investors compare the Chinese stock market performance with the world stock market performance, especially the MSCI World Index, and underperformance may imply undervaluation. Thirdly , when people expect the US economy to cool off, it could boost investors' demand for emerging markets.

I agree with her explanation; however, I have some extra points. The Chinese economy is the world second largest economy, so its stock market cannot be ignored. All global investment portfolios should have some proportion of Chinese assets, they can have negative views about the Chinese stock market and merely do this for risk pooling. Furthermore, $17bn inflow is not a significant number when we compare the investment inflow in the US stock market. Increasing inflows do not necessarily mean that the foreign investors hold different opinions in general.