FILE PHOTO: Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019. REUTERS/Aly Song/File Photo/File Photo
Donald Trump has threatened to slap tariffs on an additional $300bn in Chinese goods © Reuters

Investors pulled $2.9bn from funds that invest in China’s stock market in the month ending last Wednesday, as concerns over economic growth and tariffs weighed on Chinese shares.

The outflows from mutual funds and exchange traded funds that invest in China’s A-shares market were the sharpest since the start of 2017. Investors have now pulled $5.9bn from the funds since the start of the year, according to EPFR Global data. 

The spectre of fresh tariffs on Chinese goods, underwhelming economic data and a weaker renminbi have pressured Chinese stocks and compounded concerns about a global slowdown, triggering a rush to safe assets like US government bonds.

“Markets have had a panic attack in August,” said Michael Kelly, global head of multi-asset for PineBridge Investments. “There is a confluence of uncertainty and it’s rattling all markets and you can see it’s impacting the China A-shares market, which has led to outflows.”

Growth in Chinese industrial output slowed to the lowest pace in 17 years according to July data released last week from China’s National Bureau of Statistics. The renminbi also weakened, falling through a key threshold of Rmb7 to the US dollar.

Meanwhile, trade tensions between the US and China intensified. Earlier this month, President Donald Trump announced that a new 10 per cent levy on $300bn of Chinese goods would take effect in September before delaying the tariff.

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The outflows from China stock funds do not capture recent selling from emerging markets funds, many of which have a heavy weighting to China. In March, MSCI, the index provider, included Chinese stocks in its popular emerging markets benchmark, which is followed by about $1.9tn in assets. 

BlackRock’s iShares Core MSCI Emerging Markets ETF, which is the largest fund of its type that tracks the popular index and represents $52.4bn in assets, has shed $2.6bn in assets over the past four weeks, according to Bloomberg data.

“Outflows from Chinese stocks are definitely on our radar,” said Dave Chapman, head of multi-asset portfolio management for Legal & General Investment Management America. “The depreciating currency, capital controls, the effects on profitability of Chinese companies — these issues are interrelated and can be a true tail risk.”

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