Offshore Inflows Supported Chinese Equities On Tuesday

Note that inflows from offshore investors contributed to the outperformance observed in mainland Chinese equities on Tuesday, with a rally evident in afternoon dealing. This allowed the CSI 300 to unwind the modest losses that it sustained in the morning session, as the index finished the day the best part of 2% higher.

• While there was no overt headline trigger to facilitate the move, most pointed to hopes surrounding imminent policy easing as a supportive factor (given Chinese Premier Li’s recent run of warnings re: economic growth), which allowed the early light net sales via the northbound legs of the Hong Kong-China Stock Connect schemes to reverse, with mainland stocks enjoying net inflows (~CNY9.1bn) via that channel for the first time since 1 April.
• While most believe that the space for Chinese policy easing has narrowed, the well-documented localised COVID restrictions evident across some of the country’s major cities could push the PBoC into cutting the rate applied to its MLF operations, with the next round of such operations due to take place on Friday (7 of the 12 surveyed by BBG look for a 10bp cut in the rate applied to the MLF ops, while 3 look for a 5bp cut and the remaining 2 look for no change).
• A reminder that many expected fresh policy easing in China even before the latest COVID outbreak, given the country’s ambitious ’22 GDP growth target and the well-documented pro-growth/supportive stance adopted by Chinese policymakers.