* China sees fund inflows, reversing last year's outflows
* Shanghai Composite Index up 41 percent YTD
* Goldman Sachs raises China 2010 GDP forecast to 10.9 pct
For more stories on Asia fund inflows [ID:nTP126890]
By Samuel Shen and Parvathy Ullatil
SHANGHAI/HONG KONG, May 4 A bumper stimulus
package and encouraging data have renewed confidence in China's
growth story, drawing a fresh surge of foreign money into its
equity funds, but that flow could slow if Shanghai's
chart-topping stock rally loses steam.
The Shanghai Composite Index .SSEC has piled on 41
percent so far this year, partially recouping 2008's 65 percent
plunge, the biggest drop in its 18-year history as the global
economic slump burst the market's speculative bubble.
This time around foreign funds are buying into China's $600
billion, two-year stimulus package and its determination to
sustain strong growth by stoking domestic appetite for its
goods and services even as export demand stays depressed.
Some encouraging recent data have altered foreign
investors' views, from thinking China would be the last to
succumb to the global slowdown, to betting on a speedy recovery
in the world's third-largest economy.
"We have seen a dramatic change in sentiment in just two
months. Eighty percent of the international investors we talk
to either plan to overweight China or have already done so,"
said Yifan Hu, chief economist with Citic Securities
Hu cited anecdotal evidence of a $20 billion emerging
market fund that quadrupled its allocation to China to 10
Asian equity funds saw $1.6 billion in inflows in the 16
weeks to April 22, a big leap from the $8.1 billion in outflows
in the same period last year, with China funds claiming a major
chunk of the change.
Inflows into China funds were $1.2 billion in the four
weeks to April 22. From the beginning of the year to April 22,
flows totalled $754.5 million, compared with $812.5 million in
outflows in the same period last year, Citigroup data showed.
Inflows into Hong Kong funds were $82 million in the four
weeks to April 22. China's two main stock markets are closed to
most foreign investors, but outside listings for Chinese and
China-linked firms -- most notably in Hong Kong -- often form
the foundation for many China funds sold to overseas investors.
Investors have little choice but to buy into China's
recovery story this year, said James Liu, deputy CIO of APS
Asset Management, as other major equity markets continue to
ride roller coaster gains and dips.
"However, there're also some concerns, especially after the
Chinese stock market has had a good rally year to date while,
in the meantime, external demand is still pretty weak, which
will continue to impact the export sector," Liu said.
China's economic growth slowed to 6.1 percent in the first
quarter, its weakest pace on record, but investors noted an
improvement in data for March which offered signs that the
worst may be over.
Economists have pointed to a 4 trillion yuan ($586 billion)
stimulus package China announced last November as the main
trigger for a quick turnaround in its economy. Drawn by the
consumption focused plan, investors have taken a shine to
sectors such as banking, property, consumer products and
Among the big beneficiaries of China's support measures are
mainland bank stocks such as Bank of China
(3988.HK)(601988.SS), which has soared 41 percent in Hong Kong
Investors have also bet heavily on infrastructure companies
like China Railway Construction (1186.HK) and cement maker
China National Building Materials (3323.HK), and property
developers like China Overseas Land (0688.HK).
Meanwhile, money supply surged as government-prodded new
lending scaled a record 4.58 trillion yuan in the first
quarter, close to its full-year target of 5 trillion yuan.
Last week, Goldman Sachs said the market was still too
conservative, predicting 10.9 percent growth in China's economy
in 2010 on the stimulus measures, providing ample justification
to invest in China-related stocks.
(Additional reporting by Wei Gu; Editing by Ian Geoghegan)