A combination of anti-business government policies, deteriorating U.S.-China relations, and several draconian actions by Chinese authorities has cast a pall over foreign investment and the Chinese stock market. Chinese stocks have lost $7 trillion since the market peaked in 2021. This interests me.
FUYANG, CHINA – OCTOBER 20: (CHINA OUT) An investor watches the stock market in a trading hall on October 20, 2015 in Fuyang, Anhui province of China. Bill Schmick notes that since February 2, Chinca shares have started to make a comeback. There has been a visible relaxation of many of the policies that had caused a crisis of confidence and, as a result, Chinese technology now outperforms US technology and US large caps by more than 20%. The overall market gained much more than that. (Photo by VCG/VCG via Getty Images)
On Wall Street, the Chinese stock market is now considered “uninvestable.” Main Street and the politicians who represent them are equally negative. Anti-China rhetoric and US actions, since the attempt to force the sale of Tic Tac banning Chinese nationals from buying land here is just the tip of the iceberg.
It's as if we are already at war with China. In a recent opinion article in the New York TimesDr Rory Truex, associate professor at Princeton University which focuses on Chinese authoritarianism, says it best:
“America's collective national body suffers from a chronic case of China anxiety. Almost anything preceded by the word “Chinese” now triggers a fear response in our political system, muddling our ability to properly evaluate and contextualize the threats.”
This attitude generally means opportunity in the world of investing. I do not dispute the seriousness of the political and economic problems of this country. Much of the unease in China is of their own making. Zero Covid policies have destroyed their economy. Government authorities, unlike those in the Western world, have done little to help the country get back on its feet. The impact of Trump's trade wars persists with no solution found. Xi Jinping's lifetime appointment created an even more rigid authoritarian government. I think Xi's one-man rule felt threatened by the success of China's free-market-oriented businesses. Policies were enacted that stripped these companies of their entrepreneurial spirit, increased government control over management, trampled on shareholder rights, and, as a result, sent their stock prices to historic lows. .
Chinese support for Russia's invasion of Ukraine cemented growing anti-China politics in Europe. In the United States, these negative attitudes grew even more pronounced as China grew closer to Russia. Is it any wonder that “uninvestable” has become the new watchword for China?
Heidi Wong attends the TikTok #MetGala Watch Party at Refinery Rooftop on May 6 in New York City. Bill Schmick says attempts to force the sale of TikTok and ban Chinese nationals from purchasing land in the United States are just the tip of the iceberg when it comes to anti-China actions and rhetoric. (Photo by Craig Barritt/Getty Images for TikTok)
However, what so many Americans forget is that hundreds of American companies are investing heavily in China. Chinese revenue, for example, accounts for 19% of Apple's sales, while 44% of its suppliers' production sites are based in China. caterpillar, You're here, McDonalds, Nike And Starbucks; I could go on, but you win the point.
Bank of America's manager survey recently found that the busiest trades in global stock markets consisted of long positions in U.S. technology, followed by short positions in Chinese technology. In January, mainland China and Hong Kong suffered a collapse and even Chinese investors threw in the towel.
However, since February 2, stocks have started to make a comeback. There have been no major announcements of government stimulus, but there has been a visible easing of many of the policies that sparked the crisis of confidence. As a result, Chinese tech now outperforms US tech and US large caps by more than 20%. The overall market gained much more than that. And yet, most global investors remain underweight the world's second-largest economy.
When it comes to international investing, I've learned to pay attention to what the locals are doing. There is no doubt that Chinese investors are already buying Chinese stocks. The “national team”, i.e. investors associated with the country's sovereign wealth funds, buy mega-cap stocks listed in Shanghai and Shenzhen. Mainland investors also buy Hong Kong-listed stocks.
American investors are only beginning to realize this. By investor types, momentum traders like hedge funds and some individual investors who can move quickly are starting to dip their toes in these waters. If this rally persists, more institutions will begin to view this rebound as something more than a dead cat bounce. In this case, institutional investment committees will meet to discuss changing their “underweight” positions and may raise their investment focus to neutral.
But institutions evolve slowly, and it will take time. However, active fund managers tracking their performance against global indices are already lagging behind thanks to the recent rally and their underweighting of China. At some point, probably when Chinese stocks experience a slight pullback, some of these funds will start buying.
Either way, we could see the start of a longer-term reversal in the Chinese stock market. Today, Chinese stocks are experiencing a strong surge in profit-taking after 10 consecutive days of gains. This is normal and could be an opportunity to enter.
Certainly, buying stocks in China is not for the faint of heart. I'd say it's as risky as buying cryptocurrencies, maybe more so. Since most emerging market funds have a portion of their funds invested in China, this may be a less risky solution if you decide to go for a flyer on China, even if it is “non-investable.”
