(Yicai) Oct. 15 -- China-focused exchange-traded funds have soared following the country’s big economic policy barrage, but several foreign investment institutions told Yicai that long-term overseas investors are likely waiting for clearer indications of an economic upturn and better corporate earnings figures before fully wading back in.

“Overseas investors may be waiting for clearer signs of improvement in economic data and policy direction before entering the market,” said Xu Changtai, chief market strategist at Morgan Stanley Investment Management Asia Pacific. “We’re more optimistic about consumption-related sectors, including consumer goods, e-commerce, and internet companies, as they may deliver positive earnings surprises.”

The steep runup in China stock ETFs followed a slew of economic stimulus measures set out by China’s central bank on Sept. 24 aimed at helping the world’s second-largest economy achieve its annual growth target of around 5 percent for this year.

US-listed iShares China Large-Cap ETF had assets of nearly USD10.9 billion as of Oct. 11, up 174 percent from Aug. 30, according to data from Futu Holdings, while KraneShares CSI China Internet ETF climbed 83 percent to USD7.6 billion and ETF-Direxion rocketed 223 percent to USD2.6 billion.

Before Sept. 24, actively managed global funds had a neutral or low weighting on Chinese mainland-listed shares, Shanghai Securities News reported today, citing a representative of a foreign investment institution in the city. But with the rapid surge in the market, foreign investors have begun to increase their exposure to Chinese stocks, it added.

After the strong rebound late last month, Chinese mainland and Hong Kong equities have fluctuated, leading some foreign investment institutions to suspect that early profit-taking may lead to a market correction. But with mainland shares becoming more attractive and ongoing foreign capital inflows, they note that the market still has upward momentum.

“The larger-than-expected growth-stabilizing policies introduced on Sept. 24 will take some time to filter through to the real economy and corporate earnings,” said Meng Lei, an equity strategist at UBS Securities. “As the economic fundamentals gradually improve, corporate profits will gain momentum, creating further upside potential for the market.”

The short-term fund inflows into the Chinese market are mainly trading-related and passively managed funds, another foreign investment institution in Shanghai pointed out, adding that if China's economy continues to improve, actively managed and allocated funds are also expected to flow in.

China’s economy will likely revive this quarter thanks to the government’s new stimulus measures, with market confidence expected to recover gradually over the period, according to 13 China-based chief economists surveyed by Yicai.

If the data continues to improve, overseas funds will likely increase their holdings of Chinese assets faster, said Jason Liu, head of Deutsche Bank Wealth Management's Chief Investment Office APAC. Global funds have been overweight the United States due to the strength of US tech stocks in the past two years, with their valuations significantly higher than other stock markets, he noted.

Editor: Martin Kadiev