Twin outflows

China saw outflows from both the current account and capital account in September, official data showed. Contributing factors included a service deficit linked with outbound travel, a slump in direct investment and extended securities-related outflows.

Overseas funds cut their holdings of Chinese sovereign bonds by 13.5 billion yuan in September, according to data released by China Central Depository & Clearing on Friday. Their total holding of the debt dropped to 2.07 trillion yuan, the lowest since March 2021.

China’s stock market downturn is also taking a toll. Global funds sold US$1.6 billion of onshore equities Thursday through trading links with Hong Kong, the most in more than two months, as the benchmark CSI 300 index tumbled to a new low for the year.

With the Shanghai Composite Index dipping below 3,000 on Friday, Morgan Stanley said the exodus from onshore equities has entered “an unprecedented stage” and global funds may keep selling unless there is further policy easing.

The cumulative outflows between Aug 7 and Oct 19 amounted to US$22.1 billion, the biggest in the history of Stock Connect, strategists including Laura Wang wrote in a client note.