(Bloomberg) — Investors pulled money from exchange-traded funds in China in May for the first time in 15 months, raising questions over the strength of a recent stock market rebound.
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Equity ETFs in Shanghai and Shenzhen saw a combined withdrawal of $4.2 billion in the month through Monday, according to data compiled by Bloomberg. That’s more than what investors had poured into the funds in the prior two months.
Chinese stock markets have rallied hard since a February bottom, with state funds helping to halt months of rout by buying some of the biggest ETFs. While expectations over Beijing’s increasing policy support for the beleaguered property sector led to more gains, a tepid earnings season and questions over the efficacy of the rescue measures undermined conviction calls.
“Much of the inflows into stocks in the past weeks could have been ‘fast money’ betting on anticipation of property polices,” said James Wang, head of China strategy at UBS Investment Bank. “There may be an urge to sell” as the stimulus was weaker than expected, he said.
While officials said a central bank program can incentivize loans worth 500 billion yuan ($69 billion) to deal with unsold homes, that would only address a fraction of the value of vacant apartments, which economists estimate at multiple trillions of yuan.
Funds with the biggest outflows this month include the China CSI 500 ETF, which lost $977 million, and the Huatai-Pinebridge CSI 300 ETF. The funds were favored by the so-called national team during the earlier selloff.
Stock investors are wavering in confidence even as the CSI 300 Index gained as much as 16% in May from this year’s trough. Signs are growing that risk-appetite is stalling, with onshore turnover slipping and leveraged trades failing to pick up.
China’s domestic private funds lowered equity positioning in the first two weeks of this month, with their aggregate stock exposure at 79% as of May 17, according to data from fund tracker Shenzhen PaiPaiWang Investment and Management Co.
Offshore funds have also been slow in building back their positions, with many still keeping China among the most underweight markets.
Investor sentiment for Chinese equities declined sharply this week as traders took profit following offshore market weakness, according to Morgan Stanley strategists including Laura Wang.
The nation’s technology and property shares fell near bearish milestones earlier this week.
Read More: China’s Property, Tech Stocks Are Falling to Bearish Milestones
If more policies targeting property follow “we see more upside than downside risk,” said Wang of UBS. “But right now some are harboring doubt about the market’s trajectory.”
–With assistance from Jack Wang and Sangmi Cha.
(Updates with Morgan Stanley comments in 10th paragraph.)
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