Offshore investors dumped US$3.1 billion worth of Chinese stocks in July

• Offshore investors sold a net of 21 billion yuan (US$3.1 billion) worth of A shares last month, according to Stock Connect data
• Mortgage boycott partly to blame, caused a loss of confidence among investors, analyst says
•  BYD, CATL and Kweichow Moutai among biggest losers

Offshore investors dumped US$3.1 billion worth of mainland Chinese stocks in July, turning net sellers for the first time since March, according to exchange data.

They sold a net of 21 billion yuan (US$3.1 billion) worth of A shares last month, according to data from the Stock Connect, a key scheme connecting the mainland and Hong Kong exchanges. The last time mainland stocks saw net selling was in March, when 45 billion yuan worth was dumped.

Among the top stocks offloaded by foreign investors were 13.8 billion yuan of liquor distiller Kweichow Moutai, 14.2 billion yuan of auto and battery producer BYD and 17.9 billion yuan of battery maker Contemporary Amperex Technology. Other stocks included Tianqi Lithium and Longi Green Energy Technology.

Onshore Chinese stocks stood out as the biggest losers among a sea of gains last month. The Shanghai Composite Index tumbled 4.3 per cent and the Shenzhen Component Index sank 4.9 per cent, even as major world indexes clinched gains led by a US stocks rally.

More than 2.8 trillion yuan was erased off both mainland gauges, as China’s poor second-quarter growth, renewed regulatory concerns and Covid-19 outbreaks kept optimism in check. The sell-off deepened following a growing mortgage-payment boycott on unfinished houses, ending onshore stocks’ two-month rally that had braved a global equities slump previously.

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“Market participants took a risk-off approach to Chinese markets. Part of the reason could be China’s mortgage boycott, which caused a loss of confidence among investors,” said Eric Oh, senior broker and associate manager at Phillip Securities.

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As the US Federal Reserve continues raising interest rates to fight inflation, the widening rate gap between China and the US causes capital outflows too, said Linus Yip, chief strategist at First Shanghai Securities. He expected this to stabilise in August.

The selling came after huge purchases of 73 billion yuan in June, the most since last December. That brings this year’s cumulative buying through the northbound channel – buying of Chinese stocks by international investors – to 50.7 billion yuan.

Meanwhile, July also recorded onshore investors’ smallest net buying of Hong Kong shares since November, according to exchange data. Chinese investors bought about HK$2 billion (US$257 million) on the southbound channel, bringing the year’s cumulative buying to HK$210 billion.

It was an equally gloomy month for the Hang Seng Index, as it tumbled 7.8 per cent in July, its ugliest loss in a year, as mainland buying power remained weak. Stocks that bore the brunt of the sell-off were Tencent Holdings, Meituan, CNOOC and Wuxi Biologics.