China stimulus wasn't enough to convince retail investors to buy Chinese stocks

By Gordon Gottsegen

Instead, retail traders were motivated to take profits

This week, the Chinese government unveiled a slew of stimulus measures to boost its economy and get national GDP to an annual growth target of 5%. Chinese markets loved the news, with the CSI 300 index XX:000300 jumping 4.3% and Hang Seng HK:HSI gaining 4.1% on Tuesday and then continuing those gains throughout the week.

Yet despite all the fervor, retail investors weren't convinced to buy in.

Data from Vanda Research showed that retail investors' appetite for Chinese ETFs and ADRs remained at muted levels, much lower than in 2020 and 2021.

"Do not count on retail traders to get behind China's latest efforts to prop up their stock market. After getting burned repeatedly since 2021, retail appetite for Chinese equity ETFs and ADRs has fallen into deep bear market," Marco Iachini, senior vice president of research, and Lucas Mantle, vice president of data science, wrote in a Vanda Research note.

This comes at a time when Chinese market-tracking ETFs like iShares China Large-Cap ETF FXI and iShares MSCI China ETF MCHI are on track to achieve their best weekly performance on record, at 18.9% and 19.8% gains respectively, according to preliminary data on Friday from Dow Jones Market Data. Many Chinese ADRs like Alibaba (BABA), Baidu (BIDU) and JD.com (JD) were having their best week in at least a year.

Still, these gains resulted in more retail investors taking profits rather than increasing their positions.

"Zooming in, the second chart shows how mom-and-pop traders have taken the opportunity from the most recent surge in prices to sell out of China names," Vanda wrote.

Vanda said it's up to institutional investors to sustain the momentum of these Chinese stocks.

On the other hand, Goldman Sachs said that fear of missing out could motivate more investors to pile in after the initial rally.

"I really think this time is different for Chinese equities," Goldman Sachs technical strategist Scott Rubner wrote in a note.

If that's the case, it has yet to be seen. Still, the effects of the Chinese stimulus could add wind to the sails of Chinese corporate earnings, which could boost stock performance. It may be worth it for investors to pay attention to this or keep an eye on Chinese ETFs.

Also read: China ETFs set for best week on record after Beijing fires policy 'bazooka' to boost economy. Is it time to jump in?

-Gordon Gottsegen

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09-27-24 1126ET

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