An investor monitors stock prices on his smartphone as he sits in a brokerage house in Beijing, January 2, 2018. Asian stock markets were mostly higher Tuesday as investors looked ahead to see whether the US equity run will last. MARK SCHIEFELBEIN AP BEIJING — Chinese equities kicked off 2023 with remarkable gains and continued capital inflows amid the bullish momentum of the renminbi. China's fast economic recovery will result in more inflows of northbound capital, or the amount that overseas investors pump into A-shares via the Stock Connect program that connects Shanghai, Shenzhen and Hong Kong bourses.
The Shanghai Composite Index increased by 2.6 percent and the Shenzhen Component Index increased by 4.46 percent from the end of last year, as of Tuesday, the net inflow of northbound capital was 33.52 billion yuan $4.94 billion.
The report by CITIC Securities shows that Chinese assets will get greater appeal in 2023 and the net inflow of capital will exceed 100 billion yuan amid the steady appreciation of the renminbi.
Goldman Sachs said that overseas capital's increase in A-shares represented a trend and the logic behind it is that A-shares provide a safe haven during global market turbulence.
Analysts believe that overseas investors have been attracted to the A-share market because of its lower price-to earnings ratio, which is a widely watched measure of valuation on whether the market or a stock is overvalued, fairly valued, or undervalued.
The inflows of capital can help the renminbi improve its performance in the currency market.
The central parity rate of the renminbi was increased by 654 pips to 6.7611 against the US dollar Tuesday, on top of the 647 pip appreciation on the previous day, according to the China Foreign Exchange Trade System.
The renminbi rose over 6 percent against the dollar since November of last year, according to industry data. The recent strengths of the yuan-denominated assets made it more investment-worthy, according to Li Liuyang, an investment analyst with investment bank CICC.
China's efforts to coordinate anti-virus efforts and economic development heartened investors. In its latest move, the country downgraded its management of COVID 19 from Jan 8 to treat it as a Class B infectious disease rather than a more severe Class A, enabling quarantine-free global travel and easing other restrictions.
Global observers praise China's prospects. Pictet said that China's economy is expected to expand in 2023, and Chinese equities are expected to yield a higher return. A growth of 5 percent is possible and achievable thanks to the reopening of the economy, said Luca Paolini, chief strategist at Pictet Asset Management.
In a recent report on the global economic outlook, Goldman Sachs predicted that China's GDP growth would rise from 3 percent in 2022 to 4.5 percent in 2023. According to J.P. Morgan Asset Management's projections, China's GDP growth may rebound to over 5 percent this year, while Morgan Stanley's outlook on growth has risen to 5.4 percent.