Since the beginning of the new year, the Chinese stock market has shown sluggish trends, but domestic investors are increasing their investment in Chinese stocks. Investment funds from retail investors (individual investors who invest in the Chinese stock market) have flocked to exchange-traded funds (ETFs) that track Chinese indices. Although the Chinese stock market fell in January, it is interpreted as betting on the possibility of a rebound in the future.
Despite anticipated external risks, such as the strengthening of tariffs against China by the United States, investors expect a rebound in the Chinese stock market because they believe that the impact will not be great as China has been responding to the U.S. export restrictions. Additionally, there are increasing expectations that the Chinese government will utilize the stock market for domestic economic stimulation.
According to the Korea Exchange on the 1st, the ‘TIGER China CSI300 Leverage (Synthetic)’ fell 9.5%, ranking fifth in the domestic ETF decline rate. The ‘ACE China Mainland CSI300 Leverage (Synthetic)’ ETF also saw a decrease of 8.8%. These ETFs move twice the rise and fall rate of the CSI300 index, which is composed of the top 300 market capitalization stocks in Shanghai and Shenzhen.
Non-leveraged products such as ‘KODEX China CSI300’ (-6.42%), ‘RISE China Mainland CSI300’ (-5.16%), ‘TIGER China CSI300’ (-3.73%), and ‘ACE China Mainland CSI300’ (-3.56%) ETFs also showed declines ranging from 3% to 6%. During this period, there were a total of 14 China-related ETFs that fell within the top 50, accounting for approximately 30%.
Although the revenue from ETFs investing in China is declining consecutively, individual investors have significantly purchased these ETFs. Individuals bought a net amount of 2 billion won worth of the ‘TIGER China CSI300 Leverage (Synthetic)’ ETF last month and purchased approximately 8 billion won worth of other China investment ETFs that ranked within the top 50 for decline.
Direct stock investment has also shown a significant easing of the selling trend that continued until the end of last year. According to the Korea Securities Depository, domestic investors net sold $300,000 (approximately 450 million won) worth of Chinese stocks in January. Compared to over $8.54 million net sold in December last year, the net selling amount has dramatically decreased to one-thirtieth of that level. The Shanghai Composite Index, representing the mainland Chinese stock market, fell over 3% during this period.
Investors appear to expect a rebound in the Chinese stock market. With the Chinese government expected to actively pursue domestic economic activation, analysts suggest that the stock market will be utilized as a means of economic stimulus for China. This year, Chinese authorities proposed a policy stance of “more proactive fiscal policy and appropriately accommodative currency policy.”
Kim Kyung-hwan, a researcher at Hana Securities, noted, “Chinese financial authorities established a long-term bottom for stock prices through unprecedented interventions since last year,” adding, “As this year is expected to see the largest influx of long-term investment capital while controlling stock supply, we propose ‘increased weighting’ in the Chinese stock market for the first quarter.”
Although external risks such as the U.S.-China trade conflict remain, the possibility of negotiations is being raised. U.S. President Donald Trump declared he would impose a 60% tariff on Chinese imports. In response, the securities industry analyzed that Trump’s sanctions were not aggressive immediately after his inauguration.
Baek Kwan-yeol, a researcher at LS Securities, stated, “President Trump mentioned having constructive talks with President Xi Jinping last month, and there was nothing concerning high tariffs on China on the day of his inauguration,” adding, “In fact, by postponing the TikTok ban law for 75 days, it suggested a possibility of improving U.S.-China relations.” Hana Securities predicted that in relation to concerns over ‘Trump tariffs,’ China can minimize risks by avoiding ‘tit-for-tat’ confrontation and seeking a partial agreement.
Experts suggested that the intensity of the Chinese government's domestic economic activation is the biggest factor that will increase volatility in the Chinese stock market. Jeong Jeong-young, a researcher at Hanwha Investment & Securities, explained, “In the future, how much the Chinese government focuses on domestic activation policies will be important,” noting, “Since China’s holdings of U.S. Treasury securities have decreased since 2017–2018, and from 2023, dependence on the U.S. in China’s trade surplus is also expected to decrease, the impact of external risks on Chinese stocks will be limited.”
However, opinions are emerging that caution is necessary regarding long-term investments, as the Trump risk has not yet been resolved. Baek Kwan-yeol stated, “The Trump risk has not been enforced yet since the high tariffs on China have not been carried out, but because he decided to impose a 25% tariff on Mexico and Canada, complacency is out of the question,” adding, “There is also the possibility that the Chinese stock market may only rebound in the short term.”