(Bloomberg) — Investors pulled money out of China exchange-traded funds in May for the first time in 15 months, raising questions about the strength of the recent stock market rebound.
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Shanghai and Shenzhen stock ETFs saw a combined $4.2 billion in outflows in the month through Monday, more than investors poured into the funds in the previous two months, according to data compiled by Bloomberg.
China’s stock market has surged since hitting a low in February, with state-backed funds buying some of the biggest ETFs to halt a months-long sell-off. Hopes of more government policy support for the struggling real estate sector drove further gains, while a weak earnings season and doubts about the effectiveness of rescue packages dampened confidence.
“Much of the inflows into the stock market over the past few weeks may have been ‘quick money’ betting on the property policy,” said James Wang, head of China strategy at UBS Investment Bank. “There may have been an urge to sell” as the stimulus measures were weaker than expected, he said.
Officials have said the central bank’s program could encourage 500 billion yuan ($69 billion) worth of loans to address unsold housing, but that would address only a fraction of the value of vacant apartments that economists estimate to be in the trillions of yuan.
Among the funds with the biggest outflows this month were the China CSI 500 ETF, which lost $977 million, and the Huatai-PineBridge CSI 300 ETF, both of which were backed by the so-called state team during their earlier offerings.
Despite the CSI 300 Index’s 16% rally in May from this year’s bottom, stock investor confidence is faltering amid growing signs that risk appetite is waning, with domestic trading volumes falling and leveraged trading sluggish.
Domestic private funds reduced their share of stocks in the first two weeks of this month, to a total of 79% as of May 17, according to data from fund tracking firm Shenzhen Baibaowang Investment Management.
Offshore funds have also been slow to recover their positions, with many still considering China one of their most underweight markets.
Investor sentiment toward Chinese stocks fell sharply this week as traders took profits following weakness in overseas markets, according to Morgan Stanley strategists including Laura Wang.
Domestic technology and real estate stocks fell close to bear market thresholds earlier this week.
Read more: China property, tech stocks fall to bearish milestones
Further policies targeting real estate “seem to pose more upside risks than downside risks,” UBS’s Wang said, “but at this point some are questioning the market’s trajectory.”
–With assistance from Jack Wang and Sangmi Cha.
(Updated to add Morgan Stanley comment in 10th paragraph.)
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