International investors in Chinese companies are facing increasing risks

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Some people call this the Chinese Lehman era.

They do not know which phase it may be next.

Another was not invited to the party.

It is a fraudulent market.

Here is the big question for 2022. How in the world do you make money by investing in Chinese goods? 2021 was a time when investors around the world investing in China reached a peak. This greatly affected the skids.

In August, a decrease in for-profit companies led to an increase in the share. Then came the video game. Now the biggest risk comes from stocks, where manufacturers fall under the mountains of debt. Mix up a new version of Covid, and does investing in China make sense?

It has been several months since some of the world’s leading investors said China could not sell. And yet Chinese prices have been rising sharply in the last 18 months. So some investors are making clear money. One way they use household money is to put money together with the Chinese Communist Party. Needless to say, this raises some ethical issues for many investors around the world.

We live in a difficult situation when it comes to China’s approach to investors around the world right now. Symptoms have been around for a long time. You are looking back to the end of 2020 and Ant Financial IPO was shaken at the last minute. Last year we had a list of unexpected salvos against all kinds of different products of the Chinese market. What’s going on?

Well, I think, basically, the Chinese Communist Party has decided that Chinese secret businesses represent a threat. In the case of Ant Group, this was true because it was thought that Ant Financial would have a bigger market than China’s largest central bank. There is another important aspect of data privacy and data management.

In other words, the Chinese Communist Party is not happy with the amount of data that is in the hands of private companies. It requires great control and requires great control. That is why what we have seen, in fact, in the collapse where the prices of Alibaba, Tencent, DiDi, and many other Chinese Chinese companies were hit and bloodshed.

Yes. I mean, Chinese markets fell behind some of the biggest benchmarks last year. You see a 5 percent move in the CSI 300 benchmark of Chinese stocks, while the S&P 500 is up about 26 percent. China was not invited to the party when it came to international markets.

Many of the names I have just mentioned – Alibaba, Tencent – were stocks that traded internationally. Many people say that the Chinese market is profitable, but it is similar to the Chinese word fishing in black water. When you put your hands in the black water, you may come in with a big fish, but you do not know it is there before you put your hands in it.

So what many investors are saying is that the way to stay in China is to make money, honestly, and do what Xi Jinping wants you to do. It is to conform to his goals. Now, that strikes me that it’s all right as long as you think you understand what that policy is. In your opinion, what do you think is the most important thing and how can investors invest this?

There are some areas where this seems to be a successful approach. For example, there are 43 currency markets in China, and they saw a 205 percent increase in the year until the end of June 2021. Another, of course, in very different economic situations. and climate change.

China is doing worse when it comes to using climate-friendly technologies. Renewable energy, electric vehicles, and more. And what we are seeing in this area is the amount of Chinese household income that goes into investing that we put into those areas. But to be honest, most people are really confused.

They do not know when the next bomb will explode. They do not know which part of the Xi Jinping will be the next. And that makes it really hypocritical.

In terms of content, the economic sector accounts for, one-third of China’s economy. Apparently we have seen Evergrande, a real estate agent, get himself in trouble with the amount of debt he has taken out. But it is not just Evergrande. There are many other Chinese manufacturers in the same situation.

And investors do not consider themselves to have the right attitude if the government constantly intervenes to save them. What’s going on there? How dangerous is this for the Chinese economy and for investors?

I think the important thing to understand here is that the release of Evergrande is a sign of a very serious problem. And the issue is fixing Chinese brand China. It’s as important as it gets. This will take at least 10 years to achieve.

There is a school of thought that, see, what happens in China lives in China. This is exciting and extremely difficult for the economy, but it is impossible to have the means to trap any economic snare in the world, as some people call this period of China Lehman. Is the truth in the middle?

Many of these items are protected in a foreign country. A major manifestation of property damage, for example, is maritime bonds issued by manufacturers. And there we see a great haircut for international retailers. So that’s not good at all.

But besides this we have not seen any major spillover effects. The main consequence, I think, that will emerge is that China has been at the forefront of GDP growth for at least two decades. And if China’s economy is shrinking, as it is now, then, of course, it will not be so. We can move to what the US is leading the growth of the world and not China.

Going back to other Chinese destructive methods, one part they are not comfortable with is foreign lists. With this great system of interested organizations that, appropriately, Chinese companies can register abroad and investors around the world can buy something similar to the common shares in these companies, but without compromising other restrictions that China has on foreign ownership. Beijing is keen to see the suspension of companies in public markets elsewhere. What is its power here?

This is a very serious matter. The number of Chinese companies listed in the US market has reached 250. And their total market capitalization in May last year was approximately $ 2.1tn US dollars. So it’s not a small change in any way at all.

Now, the question is very important. The question is, should these companies, Chinese companies listed in the US, be included in it? Or is it a treasure that is dying?

Now, while all this is happening, as you say, China’s international imports are still in place. And there are some of the biggest asset managers you can think of – Goldman Sachs Asset Management, JPMorgan Asset Management, Schroders, and Mundy – all of the world’s largest companies are trying to start in China right there to sell their products, well, for a new middle class China and to this great generation of emerging Chinese retirees.

They feel like they have local friends, they have local expertise, and this is something they can work on for a long time. Are they taking a serious risk politically? Or is this an opportunity?

I think there are dangers all over the park. One is the political crisis. We discussed the questions that could affect the sale of money to a Chinese military company. That’s obvious. There are regulatory questions available in the Chinese market … not only the company’s relationship with the Chinese Communist Party, but also a number of factors such as, what is the maximum free float of the company? Who is on the board? What is the visible form of the company?

And really, can you understand their stories? And we have not mentioned the main theme, which is the risk of overhaul. The risk that Xi Jinping will wake up one morning and decide that where you put all your client’s money in China is now unlimited. It is a fraudulent market. And yet, as we discussed earlier, there are some big and clear returns that can be made if you can walk with ease in all of these doubts.

Yes. Similarly, is there a possibility that Xi Jinping may wake up one morning and say, I do not want Western economists to sell things to the Chinese people?

Chinese markets still need the expertise of foreign investors. They do not require much money, but they need expertise. And this is exactly what the economists who run China’s financial system say most often. And I think from every angle, that’s also true.

So if China is still determined to improve its economy, get better research and more intelligent money moving, I think maybe they can just shut this way down so that foreign currency into China’s stocks is much lower.

But you need iron veins. Be a test for several years. Thank you very much, James.

Thank you.