Foreign investors are increasingly turning their attention to China following Alibaba's decision to reorganize its business, which many money managers interpret as an indication of a more business-friendly approach by the Chinese government as the country's economic growth accelerates.
According to exchange data, mainland-listed stocks have seen a daily net increase in foreign purchases since Alibaba revealed its intention to divide and list its business units last week, resulting in a record quarterly total. In addition, investor sentiment toward the company has improved, and its stock price has risen this year after steep declines in 2021 and 2022.
This influx of foreign investment may signify a change in attitude among foreign investors, who were conspicuously absent as China's markets and economy rebounded after the government abruptly abandoned its strict zero-COVID policy in December. In March, the MSCI China index rose by 4.5%, outperforming the 2.8% increase for global stocks. Furthermore, the Shanghai Composite recently completed its strongest quarter in over two years, with a 5.9% gain.
Derrick Irwin, a portfolio manager at US-based Allspring Global Investments, commented on the situation, stating that the Alibaba restructuring and Jack Ma's return to China seem to be part of the government's efforts to offer an olive branch to entrepreneurs. "This may reignite investment in the private sector," he said.
Since late 2020, China has cracked down on a wide array of industries, causing both startups and major companies to operate in uncertain conditions. The government penalized tech firms for monopolistic practices and other issues, imposing hefty fines on e-commerce companies, including Alibaba.
Rob Brewis, a portfolio manager at UK-based Aubrey Capital Management Ltd, shared that his firm has re-entered Chinese equities this year, primarily driven by hopes of economic recovery and attractive valuations. Aubrey Capital also purchased Alibaba shares earlier in the year after not owning them for the previous two years. Brewis considers Alibaba's recent plans to be positive and intends to maintain "decent exposure."
Alibaba's shares have increased by over 14% in the five days since the announcement, with approximately 11.7 billion yuan ($1.7 billion) of foreign capital flowing into China's markets. This surpasses the net inflows of 9.2 billion yuan in February, pushing March's inflows to 35.4 billion yuan and setting a new quarterly record of 186 billion yuan.
Investors view Alibaba's plans, which could signal a new phase of growth and capital raising for the company, as a broader indication of a policy shift, especially given that the firm and its billionaire founder were previously high-profile targets during the crackdown.
Last week's announcement was accompanied by supportive statements from authorities. Premier Li Qiang reassured foreign investors that China would remain committed to reform and openness, expanding market access and optimizing the business environment.
A recent BofA Securities survey found that 67% of US investors now see the beginnings of a trend toward more business-friendly actions from Beijing. Ernest Yeung, a portfolio manager at US-based T. Rowe Price, expects "a gradual process of stabilization" for private enterprises and the internet sector. Yeung's team has focused on investing in "forgotten or out-of-favor" stocks, including building a position in Alibaba last year.
However, a key question remains: how will China balance its commitment to business with its political ideology? Brian Jacobsen, senior investment strategist at Allspring, said investors will be watching to see "whether this is like Mao's 'Let a hundred flowers bloom' campaign that will just be reversed if it doesn't serve the interests of the Party.
