FINANCE

Top investors are divided on the ‘volatile’ direction of the Chinese market


China’s crackdown on foreign investors and speculation on domestic assets have prompted many international investors to leave. Ray Daly is not among them.

Instead, the founder of the $ 140bn US hedge fund Bridgewater Associates and one of the country’s leading foreign investors, said he spoke directly with Chinese Communist Party officials last week and was encouraged by what he heard.

“At this stage I am convinced that this does not mean that foreign and foreign investors are not welcome,” said the 72-year-old, who first visited China 37 years ago. “We are in an environment that is volatile for investors,” Dalio acknowledged. But he said in an interview with the Financial Times that “China’s motivation should not be interpreted as a return to Maoism.”

Beijing’s regulatory blow, targeting sectors ranging from video games to education, wiped out more than $ 1 billion in market value from Chinese equities from their most recent peak in mid-February.

Goldman Sachs estimates that a further 3. 3.2 trillion market capitalization could face further regulatory uncertainty – about six percent of the market cap of all Chinese listed companies.

But Dalio said Beijing wanted “general prosperity” in President Xi Jinping’s 14th Five-Year Plan in March. He said it seeks to correct a time when capitalism raises the standard of living but creates a “huge wealth gap” and “excessive debt”.

This week, investors in offshore bonds issued by property developer Evergrand have felt the sharp consequences of Beijing’s intervention. On Friday afternoon, they still haven’t received the high-stack interest payments that fell due to the previous day.

The world’s most troubled property group is under pressure as authorities crack down on excess debt in the sector. It has an additional 30-day deadline before failing to formally pay a default result. A missing payment would start the biggest restructuring in China’s financial history, in a sector that accounts for about one-third of the country’s economy.

Renowned short seller Jim Chanos warned this week that the Evergrand crisis could be “much worse” for Chinese investors than the “Lehman-type” systemic crisis as it signals the end of the country’s property-driven growth model. “We need to find a driver for new growth,” he said, “or bring it down to a somewhat semi-permanent low.”

Others were more truthful, saying government intervention in China is nothing new and that long-term structural trends do not remove such an emerging middle-class consumer.

Fred Who

“It would be extreme and wrong to think of China as non-investable,” said Fred Hu, chairman and chief executive of Primavera Capital Group, and Goldman Sachs’ former head of China. “Similarly, no one can reliably claim that Europe is not investable in Europe because of the Euro debt and the banking crisis or Brexit, or because of the US limitations due to the subprime debt crisis.”

However, it would be “extremely helpful,” Hu added, “if the Chinese authorities could improve communication with investors and provide a greater degree of policy continuity and forecasting.”

The Evergrand crisis and the constraints of Beijing have stirred the market in recent months. But many foreign investors in China insist that their long-term horizons help them overcome their short-term shocks.

“Compared to the United States, Europe, and Japan, I think of China as an economic teenager. It is volatile and unstable, but its best decades are ahead,” said Howard Marks, co-founder of Oktree Capital Management.

Howard Marx

“China is working to grow as a financial player on the international stage in the context of their ideology,” Marx added. “If they treat outsiders disrespectfully, they will not proceed the way they want.”

‘Why would you invest in China?’

An abrupt and widespread regulatory crackdown began last November when the পাব 37 billion blockbuster initial public offering of Chinese payment group Ant was torpedoed in eleven hours by Beijing regulators. This was followed by eCommerce Group Alibaba, Techway Delivery and Lifestyle Service Platform Metuan, and Ride-All App Didi Chuksing, among the largest technology companies in China.

Xi is trying to reshape the country’s cultural and business landscape as part of a “common prosperity” campaign, so Beijing has imposed strict limits on how much time young people can spend playing video games. It has also banned the nonprofit education sector and raised criticism of the cosmetic surgery industry.

Ben Rogoff, London-based director of Polar Capital’s technology fund, downgraded his position at Alibaba and Tencent, after Ant’s IPO was canceled at the last minute. “We’ve missed Chinese stocks in the past, but that’s okay because the political risks are higher than expected,” Rogoff said, whose funds now weigh even less than their benchmark China.

“There are actually thousands of stocks in our investable universe in technology,” Rogoff added. “I can build a portfolio with a 20-25 percent growth trajectory with direct contact with China.”

Hedge fund manager Kyle Bus stopped investing in China 12 years ago. After studying the strategies of the banking system and policy officers of the country. “I decided this was a market where I would never invest,” said the founder of Dallas-based Heyman Capital Management.

“One question for investors is why would you invest in China at all risk? There is no rule of law, no trustworthy duty to investors and no proper level of audit for their companies.

“China is governed by law but not by the rule of law,” added short salesman Carson Block, founder of Texas-based Moody Waters Research. “I’m not going to be China long because the numbers aren’t believable and nothing about it is believable.”

But other investors see Shi’s “general prosperity” campaign as an opportunity to support sectors that are in line with the government’s goals of building a more efficient and more productive economy.

Carson Block

Considering these more brilliant investors, Shi’s inequality and renewable energy, green production, healthcare, software, artificial intelligence and those that ‘create’ China’s narrative. The trade war with the United States has increased the need to build a domestic supply chain and reduce dependence on imports from the United States.

At any rate, it helps to align with Beijing’s agenda: “Investment education in China should be on the right side of government policy,” said Justin Thomson, head of international equities at T-Row Price.

Additional report by Leo Lewis in Tokyo



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