- Allianz Global Investors still sees a long-term argument for investors to stick with Chinese stocks despite China’s regulatory crackdown.
- The company pleaded for staying invested in China, including attractive returns and diversification opportunities.
- Shares of Alibaba and Tencent have been affected by Beijing’s rapid regulatory changes.
- See more stories on the Insider business page.
China’s crackdown on companies ranging from tech makers to video game publishers has resulted in billions of dollars in losses in Chinese stocks in recent months, but there are still reasons for investors to stick with it. stock market in the world’s second largest economy, according to Allianz.
Shares of e-commerce heavyweight Alibaba, tech and entertainment conglomerate Tencent and New Oriental Education, and others were overturned this year as Beijing regulators impose restrictions and rule changes that affect the way whose companies conduct their business. The Chinese government is campaigning to reform a wide range of business and social practices, including limiting the time children can play video games each week.
Regulatory crackdown has intensified since late 2020 after Alibaba’s Jack Ma made critical comments about some Chinese institutions, leading to the withdrawal of his Ant group from the IPO. This week, billionaire investor George Soros criticized BlackRock, the world’s largest asset manager, for investing heavily in China.
“While the recent news from China has naturally disrupted the markets, we don’t think this is a game-changer for long-term investing. Volatility goes hand in hand with the potential for higher long-term returns from China, ”Allianz Global Investors said in a commentary article. published this week. “Understanding the dynamics at play can help make it easier to accommodate these changes. ”
Here are Allianz’s arguments for staying invested in Chinese stocks even in the face of regulatory headwinds.
1. Chinese stocks have historically exhibited higher volatility – and outsized returns
Allianz said Beijing’s regulatory crackdown highlights the different risks and greater unpredictability of investing in China compared to Western markets.
“But investors have historically been rewarded with long-term outperformance. Indeed, an investment in the MSCI China Index from January 2000 through August 2021 would have generated a return of 402%,” the company said. In the past, volatility has served as buying opportunities for many long-term investors.
2. Chinese stocks do not move at the same pace as other stock markets
The country’s stock markets are useful as a tool for portfolio diversification. China A-shares are renminbi-denominated shares of companies based in mainland China and traded on the Shanghai or Shenzhen stock exchanges. A shares have a 0.32 correlation with global stocks over the past 10 years, which means they move in different directions almost 70% of the time, the company said.
“Holding A shares in a global portfolio can help generate a better risk-return profile,” he said.
3. Foreign investors continue to buy Chinese stocks, despite recent turmoil
August marked the ninth consecutive month of positive flows for A-shares, suggesting a “buy the down” mentality among global investors. The Chinese government is encouraging cross-border investment with the launch of the Shanghai and Shenzhen Stock Connect programs in 2014 and 2016, respectively, the company said.
In so-called “southward” transactions, residents of mainland China use the Shanghai or Shenzhen stock exchanges to buy Hong Kong-listed stocks. In “northward” transactions, investors outside of mainland China can use the Hong Kong Stock Exchange to buy A shares in Shanghai or Shenzhen.
Vanda Research, which tracks retail investor activity, said last month that retail purchases of Chinese stocks listed in the United States reached their highest level in five years. Net purchases of U.S. certificates of deposit by Chinese companies exceeded $ 400 million, mainly due to the purchase of Alibaba shares.
Allianz also highlighted a handful of other factors investors should consider when considering whether to invest in the Chinese stock market. They include the fact that the Chinese stock market offers multiple investment options and that Chinese A-shares have been less affected by recent volatility. In addition, the world’s major indexes add a large number of Chinese stocks, while innovation and transformation are the engine of China’s growth.
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