8/23/2021 - Economy and Finance

Is this the time to invest in China?

By Roman Gutierrez

Is this the time to invest in China?

In recent months, we have seen how the market value of large companies in China has decreased dramatically, this fall obeys a number of new regulations, greater controls and fines than the Chinese government imposed, especially its major technological companies such as Alibaba, Baidu, Tencent, Jd.com, Didi, Byte Dance, TAL education group and others.

For example, China's educational technology sector has a value of about $10 billion, according to a Bloomberg note, which states that new regulations also prohibit foreign investment in companies that provide school materials. As you can see the theme has an important political background.

Since the beginning of 2021, a total of 34 Chinese companies had made way out of the US stock exchanges with a bill of $14 billion, according to Dealogic data. The most recent case was DIDI who raised $23 billion with his departure to the American Stock Exchange and was later sanctioned by the Chinese government.

Risks

The question of most investors is: how far will the regulatory repression of the Beijing government arrive? Could you statize any of these companies?

On the other hand, there is the fear that US regulators could unlist some Chinese companies from their stock markets, which would be catastrophic for many individual investors, investment funds and ETFs.

We must not forget that U.S. legislators have passed a law that forces Chinese companies to engage in the US to submit within 3 years to audits under the same conditions as any other American company. Not to do so, they could be expelled from the stock squares in which they operate.

A more global risk is that all this ends in a new episode of controversy and a commercial war with the US.

China is now technically in a clear “Bear Market”, originated by government decisions that affect the operationality and finances of its best companies. As an example, the Invesco Golden Dragon China ETF, the top 98 ADR Chinese tracker, has lost more than a third of its value since the maximum of February.

However, with a medium and long-term view, this market and Chinese assets represent a good investment and growth opportunity; as last year was oil when its price reached negative values, but after 1 year quoted near 70 dollars per barrel.

The fundamentals to consider and invest in China are:

  • Growing and pujante middle class.
  • Strong internal and global consumption.
  • China is a country that is at the technological vanguard of the world.
  • The market with the largest population in the world.
  • Potential exporter and manufacturer.
  • China is the second global economy, and the fastest-growing country in the world since the 1980s.
  • Chinese companies have good financial centers: for example, the profits of Chinese industrial companies fired 36.4% in May to 829.920 million yuan (128.580 million dollars), according to official data.
Finally, as we do not know where the “piso” of this bassist market would be in China, my suggested strategy is to go carrying out monthly investments in the main ETFs or actions, periodically for the next 2 or 3 months, until it sets the desired position (DAC).

Source: Statist; StockCharts. with

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roman gutierrez

Roman Gutierrez

I help people organize their personal finances and investments. I am passionate about entrepreneurship and stock markets. I have 26 years of experience in the Professional Investment Administration. I am a Venezuelan consultant based in Buenos Aires.

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