WITHu At the beginning of the week, the Chinese stock exchange had fallen sharply. The CSI-300 lost a good 8 percent by Tuesday. The reason was the unexpectedly massive regulation of the private education sector, which caught investors off guard. Suddenly, Secretary General XI Jinping’s tough line seemed to affect the entire economy and possibly his own wallet.
But China wouldn’t be China if you didn’t dig deep into the tranquilizer box. As early as Wednesday, state-controlled investor mails wrote the market upwards: Politics had been misinterpreted, there was no systemic risk, but there were opportunities to buy. Then on Thursday, the central bank stepped up its daily liquidity operations by an additional 30 billion yuan. Some analysts also speculate that government-affiliated funds are making support purchases. The securities regulation commission invited top managers of the major investment banks to a video conference, reportedly to explain to them that they only have the education sector in their sights and do not intend to harm companies in other industries.
It should also have been well received that Yi Huiman, head of securities supervision, said that the agency supports companies that are trying to be listed on the stock exchange abroad. In line with this, the transport service broker Didi, who was targeted by the Chinese authorities because of the IPO in the USA, denied a report in the Wall Street Journal, according to which Didi was planning to withdraw from the stock exchange and was considering a purchase offer to the shareholders. This rumor is untrue. The newspaper, citing people familiar with the matter, reported that the Uber rival had asked its banks to evaluate investors’ views on such plans and the price range they would accept. It is possible that this was still the case when the report was written. But after the troubled start of the week, a withdrawal from the stock market no longer fit into the concept of the Chinese leadership, regardless of whether it had anything to do with it.
Reached deeper into the reassurance box
The meeting with the securities regulatory committee gave investors a certain amount of security, said Jun Rong Yeap, market strategist at IG Asia, told Bloomberg news agency. But whether Thursday’s price rise will turn into a longer-term upward trend depends on whether Beijing will be able to calm investors’ nerves. In any case, they still seem uncertain: international investors are likely to continue to be suspicious that Chinese companies listed abroad are strictly monitored by political decision-makers, says Gary Dugan, CEO of the investment service provider Global CIO Office.
And the optimism of some fund managers is cautious. The tough crackdown on the part of the regulatory authorities came as a bit of a surprise and led to a further downward trend in an already ailing market, says Robert Samson, one of the heads of the Global Multi Asset department at the FAZ asset manager Nikko Chinese stocks offer an attractive entry point because of their valuations and their long-term prospects. “
Still, says Samson, people prefer to own stocks that are less in the firing line, like US-listed companies. “We believe that there are two reasons for China’s action: First, the new measures are intended to level the playing field and encourage business conduct that is aimed at general prosperity. Secondly, some of the measures are politically motivated and aim to punish certain companies and possibly foreign investors in the context of the trade war. ”The main motivation is domestic, plus a pinch of political muscle play vis-à-vis the international community. But the political reasons are positive in the long term: “The markets are pricing in a larger discount for deeper political risks. We consider this to be overrated. ”Ultimately, the government needs a private sector that supports economic growth. To do this, politics must be stable to the extent necessary to attract private capital. Recent actions appeared to contradict these goals. But over time, politics will create a new normal that will make the private sector work.
Caution can be felt – also elsewhere. The fund company Acatis, for example, wants to reduce its involvement in sectors in which the regulatory risk is higher in the medium term. In addition, they want to increase the share of other Asian markets in the portfolio – i.e. reduce exposure to China.
For now, the efforts of the leadership were successful: The CSI-300 rose again on Thursday by more than 2 percent.
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