This archive report was first published on 10 July 2020.
On July 10, 2020, Bank of America reported that investors had directed a record $6.1 billion into China funds, the second-largest inflow ever, according to data from EPFR Global. This surge in investment has raised concerns of a repeat of the 2015-16 bubble that saw the Shanghai index fall by over 40% in a matter of weeks.
Chinese funds also led equity inflows, receiving inflows equal to 2.5% of assets under management, compared to just 0.1% globally, the bank said. The CSI300 index has risen to levels not seen since the 2015 bubble, driven by hopes of an economic recovery, a conducive regulatory environment, and retail investor enthusiasm.
However, Chinese state-run media warned investors to respect the market, manage risks, and pursue rational investments after regulators published a list of illegal margin lending platforms. This move appeared to calm markets, but the stock rally paused on Friday, with the session ending lower for the first time since June 29.
According to Craig Erlam, senior market analyst at OANDA, “It’s not the first time we’ve seen moves of this magnitude and it doesn’t typically end well.” He added that if efforts to encourage participation continue, he would be surprised if inflows didn’t continue.
Bank of America’s report also showed weekly flows of $29.4 billion into cash funds, $17.8 billion into bonds funds, $6.2 billion into equities funds, and $2.4 billion into gold funds. Emerging markets bonds saw their first inflow in four weeks.
