Is China Stock still Investable?
Since the start of 2021, China Technology Stocks have just crashed wiping out billions of dollars in values and many investors are starting to evaluate whether they should continue to invest in the Chinese stocks and simply just dump them. All this havoc started when the Chinese government suspended the huge initial public offering of Chinese Financial Technology Company: Ant Financial Group November last year. Since then, the Chinese Authorities have started a series of legislation and investigation on the country’s internet giants, especially the e-commerce and food delivery companies.
As a start, Alibaba, the largest e-commerce company in China was slapped with a historical fine of $2.8billion after the Chinese authority’s anti monopoly investigation of the tech giant. The regulator’s investigation found that Alibaba has abused its market dominance to force the merchants to choose one of the two platforms, rather than being able to work with both. Alibaba accepted the penalty and agrees to comply with country regulations, showing that the tech giant is determined to work with the authorities. However, the market sentiment continued to be mixed as the Alibaba’s share price has dropped to a 52 weeks low after the news despite it cleared the air.
Subsequently, many investigations have happened on the multiple Chinese companies in the last few months. In end July 2021, China launches 6-month intensive campaign to police the technology sector over improper antitrust and consumer protection practices. The six-month crackdown will focus on four areas: adherence to the anti-monopoly law, protecting users, safeguarding data and obtaining official authorization to operate.
The Chinese stock market sentiment continued to stay downward trend, while you are reading this and the most of the Chinese tech company valuation have come to a historical low as well. In my personal view, such regulation and legislation move by the Chinese authorities is healthy to the overall consumer market and creates a long term sustainable growth of the Chinese economy. As mentioned by the China government, they want to ensure that there is healthy competition in the market and they want the Tech Giants to focus on innovations to create additional value to the society and the country.
In short, this creates opportunity for long term investors to invest in the Chinese economy, especially for those who have not invested in it yet. Nevertheless, there will be a lot of short term volatility and many negative news as the regulators will be launching multiple investigations on the tech companies along the next few months. I believe the six-month crackdown campaign provides the investors a long 6 months to look into undervalued companies in China and accumulate them during this period.
Looking back at the last 10 years, the tech giants have a history of quickly adapting to the new regulatory environments. The more diversified ones will know how to handle new data regulations better than anyone, and know-how to pivot to different ways of monetizing their users than anyone. In summary, I believe that Chinese government does not want to destroy these technology companies, but making a better and stronger one to compete with the international giants.
In the next few articles, I will be sharing the deep analysis of the Chinese Technology Companies such as Tencent, Alibaba, Ping An Insurance and etc. Stay Tune and Stay Safe!
