OVERSEAS investors increased their holdings of the Chinese bonds in December, snapping a record 10-month of outflows, while capital inflows are expected to continue into the new year, the country’s foreign exchange regulator said.

Risk appetite improved and investor sentiment was boosted after China dismantled most of its COVID-19 curbs in December and reopened borders earlier this month, fuelling expectations for a solid economic rebound this year.

Foreign investors purchased a net US$7.3 billion in Chinese bonds and another US$8.4 billion in A shares in December, according to the State Administration of Foreign Exchange (SAFE).

And foreigners added another US$12.6 billion worth of Chinese stocks and bonds combined on a net basis in the first half of this month, it added.

Cross-border flows are expected to become more stable this year, the regulator said, noting optimization in COVID policies and pro-growth measures should help the economy rebound.

“Supported by the stabilization of the Chinese economic growth, the increasing attractiveness of yuan-denominated assets and the prominence of the safe-haven properties of the yuan assets, foreign investors will continue to steadily invest in China’s securities markets,” the SAFE said in an online statement.

In less than three weeks of 2023, foreign buying of Chinese stocks has exceeded last year’s total as investors bet on the country’s rapid recovery after COVID-19 lockdowns were lifted.

Some foreign investment banks, including ING, JPMorgan and Goldman Sachs, have raised their growth prospects for China this year.

“With a stronger end to 2022 than we had expected, plus indications of stronger retail expenditure ahead, the outlook for GDP growth in 2023 has improved compared with our prior outlook,” said Iris Pang, Greater China economist at ING.

“That is not to ignore the fact that China still faces considerable headwinds, including external demand, with recessions likely in the United States and Europe this year.”

JPMorgan upgraded its 2023 China gross domestic product (GDP) growth forecast to 5.6% from 4.4% previously, while Goldman Sachs raised its forecast to 5.5% from 5.2% previously.

The official December and full-year foreign bond holdings data, which are published by the central bank’s Shanghai head office, have not been released yet.

Overseas institutional investors dumped a net 740 billion yuan worth of Chinese bonds during the February-November period last year, booking the longest streak of outflows on record. (SD-Agencies)