Everyone is now faced with a dilemma with investments in China. The benchmark Shanghai Shenzhen Index has lost as much as 24 percent of its value over the past year amid alarm over the Beijing government’s crackdown on tech companies.
This week, the regulatory net spread wider. Shares in casinos in Macau fell by a third as Beijing began a rigorous consultation over their licenses to operate in the region, the world’s gambling hub.
A push for digital sovereignty lies behind these policies, the desire to take control of the data tech giants collect on every transaction, giving them leverage that potentially threatens the Chinese state.
China’s benchmark Shanghai Shenzhen Index has lost a staggering 24 percent of its value in the past year amid alarm over the Beijing government’s crackdown on tech companies
More openly, President Xi Jinping aims to increase “community wealth,” favoring lower-income households who are excluded from expensive online tutoring and other opportunities for improvement — and potentially spending too much time playing video games.
These are limited to three hours per week for young people under the age of 18.
But Xi’s other ambition would be to turn China into what one analyst has called a “techno-authoritarian superpower” by curbing the power of its big tech and its outspoken bosses.
Jack Ma, founder of the banking, shopping and search engine group Alibaba, has already shrunk into the background. Over the past year, shares in this $434 billion (£313 billion) US-listed leviathan have fallen 44 percent.
This week, big tech got another dictation. Alibaba and the equally powerful Tencent, video game developer and owner of the hugely popular Wechat app, were tasked with opening up their walled garden systems, which are inaccessible to each other.
Beijing is also breaking up Alipay, an app with about 1 billion users owned by Ant Financial, an Alibaba division.
A separate app needs to be created for Alipay’s credit department. Chinese authorities blocked a £25 billion sale of Ant Financial shares last November.
Is the Chinese government’s position a signal to stay clear? After all, the country’s entrepreneurial spirit has been the main reason for investing there.
Or will more data security be part of a reset that will make the Chinese government vastly more efficient and help all businesses become more productive? Alibaba and Tencent are also the jewels in China’s economic crown. Why destroy them?
Opinions are divided on what lies ahead, adding to the confusion for investors in best buy funds such as Fidelity China Special Situations, Invesco China Equity, JP Morgan China Growth and Income and Baillie Gifford China Growth.
So what could be the benefit of Beijing’s more interventionist stance? JP Morgan’s Howard Wang believes that some stocks look attractive from a “multi-year perspective.”
Jack Ma (pictured), founder of banking, shopping and search engine group Alibaba, saw shares in this $434 billion (£313 billion) US-listed leviathan Alibaba slump 44 percent
Dale Nicholls, manager of the Fidelity China Special Situation, agrees, saying that while those current conditions can be risky, “many tech companies are now trading at historically low valuations — and at significant discounts to global competitors.”
It is possible that Chinese technology stocks could fall further. Closely watched US fund manager Cathie Wood has reduced the exposure of her Ark funds to Tencent, JD.com, the e-commerce business and Baidu, the specialist in artificial intelligence.
Obviously, investing in China has become more of a gamble, but as Paras Anand, chief investment officer for the Asia-Pacific region at Fidelity, points out, there has been regulatory intervention in China before.
Scottish Mortgage is one of my old possessions as it appeals to my adventurous side. Anyone with money Chinese funds and trusts (the easiest way to invest in this market) should also be phlegmatic about Beijing’s policy reversals.
But can investors hope that the tough stance on big tech will be accompanied by a change in attitudes towards environmental and social issues?
Kathlyn Collins of Matthews Asia said China’s leaders understand that “transforming an economy dependent on highly polluting heavy industry to one focused on clean energy, services and innovation is essential not only for the future of the world.” planet, but also for China’s own prosperity’.
All investors should keep a close eye, because what is happening in China will become more and more important for the whole world.
Share of the week… Kingfisher
WHILE the pandemic devastated sales for many retailers, B&Q and Screwfix owner Kingfisher celebrated 2020 as one of its best years in some time.
The company benefited from a DIY boom as homeowners made improvements during the lockdown, and boss Thierry Garnier’s turnaround plan finally seems to be paying off.
However, the question for investors is whether Kingfisher can maintain its momentum as it prepares to report its first half results Tuesday.
Garnier seemed to think so. In a July trading update, he raised his sales forecast after a 64 percent increase in the first quarter, despite a 1.3 percent decline in sales for the second quarter.
Kingfisher posted a profit of between £645 million and £660 million in the first half, up from previous projections of between £580 and £600 million and from £415 million a year ago.
But analysts will be looking for some guidance regarding the second half of the year and whether the last six months of 2021 can show any improvement from a very strong period a year ago.
They forecast a revenue decline of 6.6 percent over the period, pushing the like-for-like numbers for the full year down 1.9 percent.
And shareholders will be eagerly awaiting news about the dividend. A string of nine consecutive raises ended in the year to January 2019, when the company planned a shakeup and canceled its final dividend a year later when the pandemic hit.
In March, it announced a full-year dividend of 8.25p for the year ending January 2021, and investors are now hoping for an interim payout.
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