A dilemma now faces anyone with an investment in China. The benchmark Shanghai Shenzhen index has shed up to 24 per cent of its value in the past year amid alarm over Beijing’s government crackdown on tech companies.
The regulatory net widened this week. Shares in Macau casinos fell by a third as Beijing began harsh consultations in its licenses to operate in the region, the gambling hub of the world.
Behind this policy lies a campaign for digital sovereignty, a desire to gain control over the data that the tech giant acquires through every transaction, endowing them with influence that potentially threatens the Chinese state.
China’s benchmark Shanghai Shenzhen Index has shed up to 24 percent of its value in the past year, amid alarm over Beijing’s government crackdown on tech companies.
More openly, President Xi Jinping aspires to increase ‘general prosperity’, leaving low-income families excluded from expensive online tuition and other opportunities for improvement – and possibly spending too much time playing video games. .
These are to be limited to three hours a week for under-18s.
But Xi’s second ambition is to see China as a “techno-authoritarian superpower” by one analyst by curbing the power of its big tech and its outspoken bosses.
Jack Ma, the founder of the Alibaba banking, shopping and search engine group, has already languished in the background. Over the past year, shares of this $434 billion (£313 billion) US-listed Leviathan have fallen 44 percent.
This week Big Tech got another decree. Alibaba and the equally powerful Tencent, developer of video games and owner of the widely popular WeChat app, were ordered to open their ‘walled garden’ systems, which are inaccessible to each other.
Beijing is also cracking down on Alipay, an app with nearly 1 billion users, which is owned by Ant Financial, an Alibaba division.
A separate app should be created for the loan division of Alipay. Chinese authorities halted the £25 billion Ant Financial share sale last November.
Is the Chinese government’s stand a sign of clarity? After all, the entrepreneurial spirit of the country has been the main reason for investing there.
Or will greater data protection be part of a reset that makes the Chinese administration vastly more efficient and helps all companies be more productive? Plus, Alibaba and Tencent are China’s economic crown jewels. Why destroy them?
Opinion is divided on what lies ahead, leaving investors in Best Buy funds like Fidelity China Special Situations, Invesco China Equity, JPMorgan China Growth & Income and Bailey Gifford China Growth.
So what could be the reverse of Beijing’s more interventionist stance? JPMorgan’s Howard Wang believes some stocks look attractive on a ‘multi-year outlook’.
Alibaba banking, shopping and search engine group founder Jack Ma (pictured) has seen this $434 billion (£313 billion) share in US-listed Leviathan Alibaba drop 44 percent.
Dale Nichols, manager of Fidelity China Special Situations, agrees, saying that, while the current conditions may be risky, ‘many tech companies are now trading at historic low valuations – and at significant discounts to global peers’.
It’s possible that Chinese tech stocks could fall further. Closely-watched US fund manager Cathy Wood has downgraded her Arch Funds’ exposure to Tencent, JD.com, the ecommerce business and Baidu, the artificial intelligence specialist.
It is clear that investing in China has become a gamble, but as Paras Anand, chief investment officer for Asia Pacific at Fidelity points out, there has been regulatory intervention in China in the past.
Scottish Mortgage is one of my long-standing holdings because it attracts the adventurous side of me. Anyone holding money with Chinese funds and trusts (the easiest way to invest in this market) should be stigmatized about Beijing’s policy reversals.
But can investors expect a tougher stance on big tech with a shift in attitudes toward environmental and social issues?
Kathleen Collins of Mathews Asia says China’s leaders understand that ‘the transition from an economy dependent on highly polluting heavy industry to an economy focused on clean energy, services and innovation is essential not only for the future of the planet, but for China as well. . Prosperity’.
All investors should keep a close eye on this, because what happens in China matters more and more to the whole world.
Part of the week… Kingfisher
While the pandemic hit sales for many retailers, B&Q and Screwfix-owner Kingfisher celebrated 2020 as one of their best years in some time.
The firm benefited from the DIY boom as homeowners took to making improvements during the lockdown, and boss Thierry Garnier’s turnaround plan is finally paying off.
However, the question for investors is whether Kingfisher will be able to maintain its momentum as it prepares to release its first-half results on Tuesday.
Garnier began to think so. In a trading update in July, he raised his sales forecast after a 64 percent increase in the first quarter — despite a 1.3 percent drop in sales in the second quarter.
Kingfisher guided for first half profits of between £645million and £660million, up from previous estimates of between £580m and £600m and £415m a year earlier.
But analysts will be looking for any guidance related to the second half of the year, and whether the last six months of 2021 will be able to show any improvement over a much stronger period a year ago.
They are headed for a 6.6 percent decline in sales over the period, a 1.9 percent decline over the same number for the full year.
And shareholders will be eager for news on the dividend. A run of nine straight hikes ended…