Global investors have been fleeing China as they have become more distrustful of it after Russia invaded Ukraine
A growing list of risks is turning China into a potential quagmire for global investors. President Xi Jinping’s friendship with Russian leader Vladimir Putin has made investors more distrustful of China. Also, Western sanctions against Russia raise concern the same could happen to China. As a result, some international investors are finding an aggressive allocation to China increasingly unpalatable.
Outflows from the country’s stocks, bonds, and mutual funds accelerated after Russia invaded Ukraine. U.S. dollar private-equity funds that invest in China raised just $1.4 billion in the first quarter of 2022 — the lowest figure since 2018 for the same period. Global funds have started to pull out from China, selling more than $7 billion worth of mainland-listed stocks in March 2022. They also disposed of $14 billion in Chinese government debt in February-March 2022 and trimmed their credit holdings. “Markets are worried about China’s ties to Russia — it’s scaring investors, and you can see that risk aversion playing out since the start of the invasion,” said Stephen Innes, managing partner at SPI Asset Management.
