This applied research paper is written by Chang Ma (Fudan University), Alessandro Rebucci (Johns Hopkins University) and Sili Zhou (University of Macau).Even without complete financial liberalization, China can exert an influence on global equity markets through its pivotal role in world markets for commodities, goods, and services. In this paper, we investigate the price impact of Chinese portfolio equity investments abroad on individual and country stock returns worldwide. We use granular stock holding data from 2007 to 2019 in the Qualified Domestic Institutional Investors (QDII) program, which provide identification as a source of exposure to a China-specific shock. As a conduit, we focus on Chinese monetary policy that correlates positively with global equity returns after 2007, when the QDII program was introduced. We find that the sensitivity to Chinese monetary policy changes of individual stock returns worldwide depends on the portfolio rebalancing of QDII funds. This sensitivity gets larger when the QDII funds increase their holdings of foreign stocks. We also find that Chinese QDII funds react to monetary policy easing by rebalancing from safe assets such as bank deposits to risky assets and particularly foreign equities. These results speak to a growing global financial impact of China and suggest that a more fully liberalized capital account could indeed have a significant impact on US and world equity markets
