Following the escalation in the trade war between the United States and China, foreign investors have been scrambling to exit the mainland equities markets.
According to the recent data, the month of May had reflected the largest single month of equities selling since December 2016. The trend has been seen as a direct result of the decline in investor confidence and the increase in pessimism following the tit-for-tat moves between the world's two largest economies.
Market data revealed that the month of May saw a total of $7.78 billion worth of Chinese equities being sold. This was almost three times the outflow of equities that was witnessed in the month prior.
This marked the greatest amount of equities being sold ever since the Shenzhen-Hong Kong Stock Connect was established in 2016. Stock connects are types of instruments that allow foreign investors to get into the Chinese equity markets.
The exit trend was initially noticed in April when major overseas investors started to pull out of Chinese equities. This was reportedly instigated by the breakdown of trade negotiations between China and the United States.
This was then exacerbated by the US' recently imposed tariff hikes on $200 billion worth of Chinese imports. China immediately responded with its own tariff hikes on an estimated $60 billion worth of US goods, further worsening the outlook on the equities market.
In April, a total of $2.61 billion worth of outflows from mainland equities was recorded. The outflow was from different stock connects, including the Shanghai-Hong Kong Stock and the Shenzhen-Hong Kong Stock Connect. As hopes for a possible amicable agreement between the United States and China crumbled, the amount of the outflow continued to escalate.
According to market experts, the uncertainty over the relationship between China and the United States has proven too much for foreign investors to handle.
Foreign investors are apparently much more risk-averse that Chinese investors, with most believing that China may have a difficult time maintaining the A-share market at an acceptable level.
The outflow also directly affected indexes, with the month of May seeing the second consecutive decline for the Shanghai Composite Index. The index fell by as much as 5.84 percent. The CSI 300 index also fell by as much as 7.24 percent in May, marking its first month of loss for 2019. Several companies trading on the stock connect markets have also experienced drastic declines, including those that were in the green over the past few months.
