Chinese stocks with positive outlooks
After the latest regulatory scare, Chinese stocks seem to be back on track.
Widespread action in various sectors of the Chinese economy has rocked global financial markets, leaving American investors in the line of fire in some of the hottest sectors. But regulatory measures targeting the key technology, real estate and education sectors have sparked heavy selling in Chinese markets and laid a dark cloud of uncertainty over Chinese stocks. The stocks of some of the best known Chinese companies like Tencent (OTCPK: TCEHY) and Meituan (OTCPK: MPNGY) as well as lesser known companies like TAL Education (NYSE: TAL), New Oriental (NYSE: EDU) and Gaotu Techedu (NYSE: GOTU) are due to the measures mentioned, fell by double digits within a few days. The Nasdaq Golden Dragon China Index (NASDAQ: PGJ), which tracks 98 of the largest US-listed Chinese companies, plunged 8.5% on Friday and another 7% on Monday, recording its strongest two-day sell-off since the global Crash of 2008. The major indices were not spared either: The Hang Seng fell 5.4% and the Shanghai Composite Index by 2.5% on Monday. However, it appears that this sell-off has now passed Beijing's comfort zone: Chinese state publications have issued a warning after investors went on a sales spree fearing even stricter government regulations. In fairness it has to be said that the international community cannot be blamed for being so nervous and not knowing what to expect from China. After all, Beijing has sent mixed signals, on the one hand that it finally wants to open up to foreign markets, but on the other hand it is also attacking market participants who are moving too quickly in this direction. Not so long ago, foreign investment in the Chinese market was a complex and tightly controlled proposition. But slowly but surely, China's capital markets have moved into the global investment mainstream. In 2018, Chinese A-shares (yuan-denominated shares traded in the mainland) were added to the MSCI Emerging Markets Index for the first time. Beijing also introduced Connect programs that allow foreign investors to purchase certain bonds and stocks through the Hong Kong stock market. In 2019, the Bloomberg Global Aggregate Index announced the addition of Chinese bonds to the index for the first time; the J.P. Morgan Government Bond Index-Emerging Markets followed in February 2020 Chinese bonds could start trading in the FTSE Russell's World Government Bond Index (WGBI) from October 2021. Just recently, in June 2021, Beijing introduced crude oil options on the Shanghai Stock Exchange, which are open to foreign investors. But here, too, Beijing does not seem to be able to decide where to go. First, Beijing began cracking down on this area by restricting bitcoin mining over concerns about excessive speculation and warning financial institutions not to offer crypto services. Then regulators took action against Chinese ride-hailing giant Didi Global Inc. (NYSE: DIDI) for alleged data security violations. Chinese consumers have become more and more privacy conscious in recent years, and Beijing appears to be taking steps to protect platforms like Didi's that process sensitive information like locations. The swift action taken by the Chinese authorities against Didi just days after the IPO has made it clear to international investors who the boss is, but also that Beijing is capable of throwing regulatory curve balls that can sometimes fly in their direction. The DIDI shares have plummeted by more than 50% since going public in June. But it seems that Beijing has realized that trampling on domestic global icons is not exactly the best way to instill confidence in the burgeoning international securities market. A comment on the front page of the state-run Securities Times said: "There is no systemic risk in the A-share market as a whole, the macroeconomy is still in a steady recovery phase, and short-term fluctuations do not change the positive outlook for A over the long term -Shares, "and:" The recent market decline reflects, to some extent, misinterpretation of politics and the acting out of emotions. Economic fundamentals have not changed and the market will stabilize anytime. "