“No rule of law”: Investors are divided on the Chinese market


This week, conflict broke out between the two most famous investors in the world, reflecting the growing disagreement on the feasibility of investing money in China on Wall Street.

Since Chinese President Xi Jinping initiated a series of regulatory measures on education, video games and other industries in the past 10 months, fund managers’ attitudes towards the world’s second largest economy have been cooling down. These measures have reduced the value of Goldman Sachs’ US-listed basket of Chinese stocks by nearly half from its peak in early 2021, and prevented the flow of once vibrant Chinese companies from listing in New York.

But this week, when BlackRock, the world’s largest asset management company, announced on Wednesday that it had Raised $1 billion The opportunity to enter China’s growing savings market attracted its first mutual fund in China.Just a day ago, billionaire financier George Soros wrote in The Wall Street Journal that BlackRock’s entry into China was “Tragic error”.

“BlackRock was wrong,” said the 91-year-old former hedge fund manager who is known for his outspokenness, having previously warned that Chinese investors face ” Regret“Because “Xi Jinping regards all Chinese companies as tools of a one-party state.”

Data from data provider Copley Fund research shows that managers of active global equity funds have reduced their allocation to China and Hong Kong to their lowest levels in four years. Copley conducted a sample survey of 381 funds with assets of more than US$1 trillion, and calculated that the number of Chinese and Hong Kong stocks held by just over a quarter of the funds exceeded the benchmark global index. At the beginning of 2015, up to 45% of investors made such a large bet on China.

“You don’t know what Chinese companies are fighting for — profit or the government,” said a hedge fund manager based in London. “There is no rule of law. Avoid China-or become an insider.”

Cathie Wood, CEO of Ark Invest and one of the most watched investors, told a group of institutional fund managers on Thursday that her fund was “dramatically” Reduce exposure From the end of last year to China.

She said that the Chinese authorities are now focusing on social issues and social engineering at the expense of the capital market. Now, her portfolio includes stocks from the country only if these companies “please” Beijing.

The uneasiness of foreign investors reflects that China has suddenly launched a series of offensives in the business and economic fields in the past 10 months.These unexpectedly severe interventions have created a sense of unpredictability, and some investors and analysts have stated that this may cause the country’s huge market Practically not investable.

Almost no sector has not been subject to the Communist Party’s “Common prosperity” movement, Including cracking down on China’s largest technology companies and real estate speculation, and strictly limiting the time allowed for young people play video game, And prohibit profit-making purposes Education sector.

The Chinese authorities also stated that they might crack down on the so-called Variable interest entity — Support the legal structure of the country’s US$2 trillion stocks in the US market. These tools have promoted foreign investment in companies such as Alibaba and Tencent.

The latest development was in mid-August, when a Communist Party committee announced the need to “Over-regulated income“, set off a wave Charity Donation And the commitment of leading private sector entrepreneurs to demonstrate their alignment with policy priorities.The world’s largest stock Luxury goods companyIts growth, driven by China, has also declined due to this apparent aversion to conspicuous consumption.

But when some foreign investors packed their bags, others—many of whom had invested in the country for many years—have gained a foothold.

Ray Dalio, the founder of the world’s largest hedge fund Bridgewater Fund, said at a Bloomberg event on Wednesday that China and Singapore are “a part of the world that cannot be ignored, not only because it provides opportunities, but also If you are not there, you will lose excitement.”

Those who are optimistic acknowledge the unpredictable political risks, but insist that the regulatory intervention of the Chinese authorities is nothing new, and its disadvantages are offset by the long-term bull market stories of increasingly affluent consumers.

Fund managers are not only weighing whether to invest in Chinese assets. They are also considering how to provide services to consumers there. Except for BlackRock, Foreign investor Including JPMorgan Chase Asset Management and Goldman Sachs Asset Management in the United States and Amundi and Schroder in Europe are entering China with wealth management joint ventures.

BlackRock said in a statement that it hopes to provide China with “our retirement system expertise, products and services,” and China “is taking steps to resolve its growing retirement crisis.” It declined to comment on Soros’s criticism.

From an investment perspective, fund managers who insist on cooperating with China stated that their strategy is to try to avoid political noise, find industries that meet the established goals of the Communist Party, and companies whose valuations are sluggish relative to their competitive position and status. American or European counterparts.

“Invesco is still optimistic about China’s opportunities because we believe it will maintain its growth model for many years,” said Invesco Asia Pacific head and a US$1.5 trillion asset management company. It is increasing the amount of investment in Chinese securities and increasing the number of analysts covering Chinese technology companies.

“China is not opposed to entrepreneurs and capitalists… It remains committed to establishing a sound domestic capital market and hopes that private sector innovation will flourish,” he said.Recent regulatory intervention attempts to resolve Monopoly Technology Company He added that for long-term growth and social welfare, as well as for-profit counseling companies.

Luo added that the regulatory suppression of Chinese technology giants “may mean that more small innovative companies may be able to enter the market and provide a fairer and more balanced playing field. We look forward to more listings and more innovation.”

Others are equally determined to insist on investing, because the “common prosperity” policy will herald further growth in China’s consumer sector. “In the next few years, hundreds of millions of people will join the ranks of the consumer middle class,” said Mark Martyrossian, CEO of Edinburgh-based Aubrey Capital Management, a $1.6 billion boutique store. “If you can find a company with a strong competitive moat and you can use it, you can still make a lot of money.”

Rebase’s line chart shows that Chinese stocks listed in the U.S. have suffered a greater sell-off than the broader market

Another strategy is to try to align with the government’s goals, like the Ark Forest. “We have acquired a series of domestic and international companies facing China that are involved in innovation, consumers, health and wellness, and technology,” said Jack Dwyer of the former Soros Fund Management Company, who now runs the Sydney-based Conduit Capital. “Compared with their counterparts in other jurisdictions, the valuation of these businesses has a significant discount.”

Electric vehicles, rare earths and semiconductors also contribute to China’s transition to a green economy and the desire to strengthen the domestic supply chain. He said: “When looking at China, I think this may be a problem, what can be done right, rather than thinking that the wheels are falling off.”

Additional report by Chris Flood in London


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