China Funds Post Record Outflows as ETF Money Exits Bear Market

China Economy
Economists surveyed by Bloomberg News cut their projections this month for China’s growth, with the median estimate for the first quarter dropping to 7.4 percent from 7.6 percent in February. Photographer: Brent Lewin/Bloomberg

Chinese equity funds are posting their biggest outflows on record as concern deepens that the world’s second-largest economy is slowing.

Investors pulled out a net $1.5 billion in the week through March 19, of which $1.3 billion came from exchange-traded funds, Citigroup Inc. said today, citing EPFR Global. Emerging-market funds had outflows of $4.1 billion in the 21st straight week of withdrawals, analysts Markus Rosgen and Yue Hin Pong wrote in a report, while European funds had inflows for a 38th week.

The Hang Seng China Enterprises Index entered a bear market yesterday and the yuan sank to a one-year low after Goldman Sachs Group Inc. cut its forecast for China’s economic growth. The gauge of H shares in Hong Kong is the world’s worst-performing benchmark index this year as data showed falling exports, weaker manufacturing and slower retail sales, while the collapse of a closely held developer and the default of a solar energy company spurred speculation bad debts will rise.

“There have been a lot of concerns in the market over China’s growth slowing down,” Pong wrote in an e-mailed response to questions. There are also “on-going negative stories like weakening PMIs, default on loans.”

Investors pulled a net HK$1.7 billion ($219 million) of funds from the iShares FTSE A50 China ETF on March 17, the most in almost a year, data compiled by Bloomberg show. The CSOP FTSE China A50 ETF had outflows of HK$1.5 billion that day, the largest since it first traded in Hong Kong in November 2012. The yuan sank 0.45 percent on March 17 after China’s central bank doubled trading limits versus the dollar.

Share Valuations

The FTSE China A50 Index, which includes the biggest mainland-traded Chinese companies by market value, fell yesterday to the lowest level since November 2008.

The Hang Seng China gauge is valued at 1.1 times net assets, the biggest discount since September 2003 to the MSCI All-Country World Index of developed and emerging shares, which has a ratio of 2.

Economists surveyed by Bloomberg News cut their projections this month for China’s growth, with the median estimate for the first quarter dropping to 7.4 percent from 7.6 percent in February. For the full year, the median estimate slipped to 7.4 percent from 7.5 percent. The survey was conducted from March 14 to March 19.

Data released earlier this month showed fixed-asset investment expanded at the slowest January-February pace since 2001 and retail sales showed the weakest gains for the period since 2004. Industrial production for the first two months rose 8.6 percent from a year earlier, compared with the 9.5 percent median estimate of economists.

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