The ongoing real estate crisis in China coupled with the continuous decline of A shares has led to significant withdrawals of foreign investors from the Chinese market. This trend has set a record for six consecutive months of net selling of Chinese stocks, reflecting growing concerns about the Chinese economy among global investors. The news of the Chinese Communist Party’s plan to establish a 2 Trillion Yuan on approximately 281 billion US dollarsstabilization fund briefly boosted stock markets in China and Hong Kong two weeks ago only to see them turn downward again last week with five consecutive days of decline.On February 2nd A shares experienced a sharp fall with the Shanghai Composite Index dropping 3.77% to a new low since March 2020.
This decline was mirrored in other indices with the Shenzhen component index, the Chenx index, both falling 4.85% at one point, over 5000 stocks in all A shares fell by more than 6% during the week. Foreign investors have been actively selling off Chinese onshore stocks with global funds selling a net of 14.5 billion yuan, around 21 billion US dollars worth of stocks through southbound trading in January alone setting a record for six consecutive months of selling, this cumulative selling since August last year has reached 2011 billion yuan approximately 28.3 billion US dollars.
According to the Institute of International Finance net foreign holdings of emerging market bonds totalled nearly 179 billion US dollars in 2023. While emerging markets other than China saw a net inflow of 261.1 US dollars, China experienced a net outflow of bonds totalling 82.2 billion US dollars. NTDTV noted that this is the longest and strongest outflow of foreign capital since the inception of the Shanghai Hong Kong stock connect and Shenzhen Hong Kong stock connect initiatives signalling a negative outlook for China’s medium and long term economy, not only foreign investors but also Mainland Chinese consumers have felt the chill of the sharp economic downturn to hedge against the financial crisis’s uncertainties. People have been buying and hoarding gold in significant quantities.
Even the People’s Bank of China has joined in on this trend. According to the “Global Gold Demand Trend Report 2023” released by the World Gold Council on January 31st, total gold demand in 2023 reached a record high of 4899 tons. Central banks globally purchased over 1037 tons of gold, second only to the 1082 tons in 2022, marking the second highest figure since 1050. Among these purchases, the Central Bank of China bought more than 225 tons of gold on a net basis, the highest level since data collection began in 1977. Based on the independent Precious Metals Authority LBMA’s (PM) current gold price, as of the end of 2023, gold was priced at 2078.4 US dollars per ounce, setting a new year end closing record and boasting an annual return of 15%. The average price of gold in 2023 stood at 1940.54 per ounce, also reaching a new high and marking an 8% increase from 2022.
China’s investment demand for gold, including bars and coins, surged by 28% to 280 tons, largely offsetting a sharp decline in Europe, as per the report. Although global demand remained steady, China’s gold jewelry consumption increased by 10% last year, totalling 630 tons. Speaking to the Epoc Times a Beijing resident stated that many Chinese people turn to Gold purchases due to past experiences. With fraudulent Financial products in the declining property market, they may see it as an opportune moment to invest in gold. Many believe that physical gold offers a sense of security as it’s tangible, most ordinary folks aren’t concerned about gold stock prices, they opt for purchasing gold bars to safeguard their wealth.
Xie Tian, an expert on Chinese affairs and a marketing professor at the University of South Carolina’s Aiken School of Business, emphasized to the Epoc Times that Chinese individuals buy gold out of concerns about the country’s economic future. Xie Tian noted that they fear that the bursting of the housing bubble and stock market collapse could lead to significant RMB depreciation. In the times of uncertainty, gold serves as a traditional store of value.