Foreign Capital: Catalyst for China's Asset Surge?

Today, the most talked-about topic around the world is the U.S. presidential election, as its outcome could significantly shape the future trajectory of the world.

However, the more intense their competition becomes, the greater the uncertainty of the results, leading international capital to flow increasingly into countries with lower risks and relatively stable domestic environments.

In the latest global capital flow report released by Goldman Sachs, it was revealed that, for the four weeks ending October 30, the A-shares attracted a capital inflow of $24.385 billion, equivalent to about 170 billion yuan.

This indicates that China's recent policies have provided foreign investors with new opportunities and assurances when evaluating investment prospects in the A-share market.

Additionally, as uncertainty in the United States diminishes, China will be able to advance its overall economic stability more confidently, even amid continued interest rate cuts.

Manufacturing Strength More Attractive to Foreign Capital

Regardless of whether Trump or Harris is elected president, there is a significant likelihood that the Federal Reserve will continue lowering interest rates.

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Factors contributing to this include the "avalanche" of the U.S. non-farm payroll data in October and the economic policies of both candidates.

Trump had suggested exerting greater influence over the Federal Reserve's interest rate decisions, which would compel the Fed to lower rates.

A reduction in interest rates implies an influx of foreign capital into China, allowing for greater control and autonomy over its adjustment space.

From the relevant data, it is evident that this is not only a result of the Federal Reserve's rate cuts but also a reflection of China's secure and stable business environment in the context of global unrest.

While 170 billion yuan of foreign capital flows into China, India, which has seen years of rising trends, is facing a significant outflow of foreign capital.

In October of this year, foreign financial institutions and investors withdrew a staggering $10.4 billion from Indian stock markets, creating a stark contrast with previous data.

The reasons for this include the high overall valuations of the Indian stock market reaching historical peaks, which triggered panic and sell-offs among investors.

The pace of economic growth is also slowing down, impacting investor confidence, along with a poor business environment.

India has earned the nickname "the graveyard for foreign capital" for good reason; they abide by the principle of "earn in India, spend in India," and many famous global firms have faced tax audits and exorbitant fines there.

In reality, the flow of global capital can be summarized as a pursuit of profit while avoiding harm.

In these final days of extreme tug-of-war between the American political parties, the panic index in global financial markets has surged sharply, peaking at 14%. U.S., European, Japanese, and Indian stock markets have all declined, while the Daxing Stock Index in China rose by 1.1%.

This is a clear indication of international assets' trust in China's business environment, as evidenced by recent reports from Morgan Stanley and UBS raising China's 2024 economic growth forecast to 4.8%.

Their rationale is that China's third-quarter growth exceeded expectations, driven largely by advancements in the manufacturing sector on the path to overcoming its "large yet weak" status.

China has broken through key technological barriers related to LNG vessels, achieving significant progress in high-end shipbuilding and maintaining world-class standards alongside cost-effectiveness.

Moreover, the mature process industrial chips are essential for most industries globally.

Despite Western countries blocking and sanctioning China's high-end chips, rapid progress has been made in China's mature process industrial chips.

Last year, exports of mature process chips from China accounted for 26% of the world's total exports, and this year's share continues to rise, likely positioning China as the world's leading exporter of chips.

Research indicates that by 2027, China's mature process chips could account for about 35% of the global chip market share, intensifying global reliance on China's industrial chain and manufacturing capabilities.

Such fertile ground for manufacturing will naturally attract global capital investments.

Thus, the inflow of global funds is driven by the uncertainties from the U.S. and the favorable impacts of U.S. dollar interest rate cuts, as well as China's own robust strength and demand.

Inflow of Foreign Capital Might Stimulate Domestic Economy

Whether driven by economic growth exceeding expectations in the third quarter or by the repatriation of some international capital due to dollar interest rate cuts, the chain reactions caused are largely beneficial for China.

Therefore, China's next steps will surely be to promote favorable conditions for the domestic economy and stimulate the domestic consumption market.

Recent policies clearly reflect the national resolve and efforts to stimulate consumption.

For instance, in the real estate sector: cuts in reserve requirement ratios and policy interest rates, as well as reductions in mortgage rates for existing properties, clearly indicate the government's intent to stabilize and even slightly revive the real estate market's downturn.

In education policies: increasing the number of national scholarships for vocational, undergraduate, and master's students, which not only stimulates students' desire to consume but also inspires their motivation to learn and progress.

In the home appliance sector: the old-for-new state subsidy has been ongoing for several months, with subsidies reaching as high as 2,000 yuan. This not only revitalizes the home appliance industry but also provides real subsidies and benefits to the public.

All these chain policies arising from interest rate cuts require active participation from societal entities; thus, the transmission chain aimed at stimulating economic vitality will take some time to implement, understand, and digest.

However, investments and factory setups driven by foreign capital inflows can directly alleviate some of the current pressures faced by Chinese society, whether it is difficulties in employment or insufficient cash flow for enterprises, these issues can be addressed to a certain extent.

Moreover, as the international environment becomes relatively stable and the Federal Reserve intensifies its interest rate reductions, China's strengths, environment, and assets will become more attractive to foreign capital, and these chain reactions will naturally contribute to stabilizing and improving China's economy.