SHANGHAI: Foreign investors continued to cut holdings in Chinese bonds in June but added positions in equities, bucking the trend in other emerging markets (EM), the Institute of International Finance (IIF) said on Wednesday (Jul 6).
Chinese debt showed US$2.5 billion of outflows last month, compared with US$9.1 billion of inflows in other EM, IIF estimated in a report.
If confirmed by official data, it would be the fifth consecutive month of foreign outflows from China's US$20 trillion bond market.
China's stock market meanwhile witnessed US$9.1 billion of foreign inflows, compared with outflows of US$19.6 billion in other EM markets, according to the IIF.
China's stock market rebounded more than 6 per cent in June, on economic stimulus measures by Beijing and eased COVID-19 restrictions.
"For the coming months, several factors will influence flows dynamics, among these the timing of inflation peaking and the outlook for the Chinese economy will be in focus," the IIF report said.
Overseas investors have been reducing holdings of Chinese bonds since February, as diverging monetary policies kept Chinese yields pinned below their US counterparts.
The People's Bank of China has been easing policy to aid a COVID-hit economy, while the US Federal Reserve has been hiking rates to fight inflation.
Last week, China took fresh steps to lure foreign bond investors, saying it would cut service fees, improve overseas access to foreign exchange hedging, and streamline the process of opening accounts.
China also announced plans for "Swap Connect" with Hong Kong on Monday, allowing mutual access to interest rate swap trading. The move would provide a new risk-hedging tool for overseas investors in China's bond market.