FOMO finally returns to Chinese equities

Looking up. After a $5 trillion fall, green shoots are appearing in Chinese equities: Hong Kong’s benchmark Hang Seng Index is up 20% from its most recent low in January and is gaining momentum. Shares tred on mainland are up 16%. Unlike previous rallies which quickly fizzled out, se look better supported.

Inflows to both destinations have been prodigious, with offshore investors pouring 22.5 billion yuan ($3.11 billion) into onshore stocks in a single day last Friday. More important than size of those flows is ir composition.

It's not just China's national team of state-owned entities buying. Local trers say global long-only investors are returning to market at a meaningful scale for first time since early 2023, when Beijing finally ended onerous Covid-19 restrictions.

re is an external push in China's favour too: falls in U.S. equities spurred by Federal Reserve's higher-for-longer interest rates and weak Japanese yen have me cheap Chinese stocks an attractive hedge, both globally and within region. Chinese shares tre at 9.3 times forward price-to-earnings, half ir ratio in 2021, LSEG data shows.

Crucially, fear of missing out on a rebound is also rising. Hang Seng rally, for example, is driven partly by purchases from mainland investors front-running anticipated foreign buying.

overall enthusiasm seems rational. China’s securities regulator last month released a list of policy goals for coming dece prioritising shareholder returns. Officials also announced plans to expand access for mainland buyers to Hong Kong’s market and voiced support for new Chinese listings in deal-starved city.

Of course, policymakers may yet fail to deliver on those measures. Underwhelming GDP growth or weak earnings performance in world's second-largest economy also could once again spook foreign fund managers and sap local investors’ animal spirits.

And re is a long way to go. Exposure to China remains light, with average allocations by global equity funds at 1.5% at end of March, according to fund flow tracker EPFR, almost half country's weighting in MSCI All Country World Index . But China stocks are, at least, back on table.

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Hong Kong’s China-dominated Hang Seng Index has risen 20% from its recent low in January, supported by substantial purchases from both mainland trers and global investors.