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SHANGHAI (Reuters) – Chinese investors are reducing exposure to equity markets and investing in safe haven money funds (MMFs) as equity markets retreat from multi-year highs amid concerns over policy tightening and high valuations.

FILE PHOTO: A man wearing a protective mask is seen inside the Shanghai Stock Exchange building, as the country is hit by a new coronavirus outbreak, in the Pudong financial district in Shanghai, China, February 28, 2020. REUTERS / Aly Song

The trend since mid-February marks a reversal in risk-seeking behavior seen between April 2020 and January 2021, and caused the country’s blue-chip index to post its worst monthly performance in a year in March.

Foreign investors were also cautious, their purchases through the Hong Kong-China Stock Connect fell in March as the yuan also depreciated against the strength of the dollar.

(Chart: main Chinese stock indices down since mid-February)

Money market funds have traditionally been viewed as low risk and liquid because they invest in higher quality assets, including government bonds.

The Hwabao WP Listed Money Market ETF, the largest money market ETF listed on the Shanghai Stock Exchange, saw its total units rise 21% to 1.77 billion on April 8, from 1.46 billion on February 18.

Analysts said the stock market correction since mid-February was mainly due to fears over foamy valuations after Beijing set a conservative economic growth target that implied policymakers wanted leeway to curb bubbles. in the financial markets.

The Yinhua Money Market EFF, another major money market ETF listed on the Shanghai Stock Exchange, saw its total units rise 30% to $ 1.3 billion on April 8, from $ 1 billion on February 18.

Shares of the largest blue-chip ETF index tracked by China fell to 7.8 billion on April 8, from 8.6 billion at the start of the year.

(Chart: Chinese MMF ETFs grow,)

I don’t see any great opportunities at the moment, and investors won’t be happy to buy stocks at this time without a further correction that could give them more leeway and leeway, said Fu Yanping, strategist at the Wealth Management Headquarters of China Galaxy Securities.

Mr Fu said money market funds were a good choice for investors, as China gradually tightened its policy.

Meanwhile, margin lending in the stock market, an indicator of investor sentiment, fell as the markets fell.

(Graph: China’s margin loans are declining,)

While foreign investors bought less mainland stocks, they turned to more defensive sectors such as banking. They bought 12.5 billion yuan ($ 1.91 billion) of Chinese bank stocks in March through Stock Connect, CITIC Securities analysts said in a report.

China’s economic recovery momentum has been quite robust. However, there are concerns, especially among foreign investors, about a change in China’s monetary policy if the momentum gets too strong, said Hu Yunlong, a Beijing-based hedge fund manager.

(Chart: Foreign inflows slowed in March,)

(Chart: Chinese yuan weakens against dollar,)

Reporting by Luoyan Liu and Andrew Galbraith; Edited by Vidya Ranganathan and Kim Coghill

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