Foreign holdings of China equities at record

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By Luoyan Liu and John Ruwitch

SHANGHAI (Reuters) – Foreign holdings of Chinese stocks rose to a record high by the end of the third quarter, despite the ups and downs in a protracted trade dispute with the United States, as Beijing further opens its financial markets to help fund businesses.

By end-Sept, Chinese equities held by foreigners were at a record of 1.77 trillion yuan ($253.14 billion) after having risen for four straight months, up nearly 40% in a year, the latest data from the People’s Bank of China (PBOC) shows.

China is stepping up opening of its heavily policed, giant capital markets, having recently scrapped investment quotas under the Qualified Foreign Institutional Investor (QFII) scheme.

Cross-border yuan usage jumped 20% in Jan-Sept on capital market opening, with about 6 trillion yuan of cross-border yuan payment for securities investment, according to a central bank official.

Graphic: Foreign investors hiked their holdings of Chinese equities to record high,

The data also showed investors had been net buyers of A-shares through the Stock Connect linking Hong Kong and the mainland for the past five months through October, purchasing a net 158.2 billion yuan worth of A-shares.

The Stock Connect is a scheme to allow foreign investors convenient access to the A-share market.

Robust foreign inflows into the stock market of the world’s second largest economy come as major international index providers, including MSCI, Russell and S&P, have begun or are stepping up inclusion of China A-shares and bonds on global indexes.

Graphic: Robust net foreign flows into the A-share market for the past five months in a row,

The heaviest foreign flows were into the consumer sector, as foreign investors hoped for China’s policy stimulus to bolster an economy hurting in a nearly two-year long trade war with the United States.

Beijing has rolled out a raft of measures to boost domestic consumption, which accounts for over 60% of its economy, to help shore up faltering demand.

The consumer sector remained the most preferred by the northbound flows via the Stock Connect, with food and beverage, home appliances and healthcare stocks making up 40% of those foreign investors’ A-share holdings by market value, analysts at Essence Securities said in a report.

Graphic: Consumer shares outperformed as Beijing vowed to spur domestic consumption,

The preference for the consumer sector was evident from the mainland-listed firms in which foreigners invested the most heavily, such as top liquor makers Kweichow Moutai and Wuliangye Yibin, and leading home appliances makers Midea Group and Gree Electric.

Graphic: Chinese tops firms most favored by foreign flows,

(This story corrects number of months in paragraph 2 to four, not five)