A major investment bank is shunning Chinese stocks due to the crackdown on Chinese firms by its government.
According to Joyce Chang of J.P. Morgan, China’s regulatory crackdown is intensifying, putting downward pressure on major market groups and industries.
China, according to Chang, will attack corporations in waves, with the most recent one lasting a few months.
The regulatory activity is part of the administration’s “shared prosperity” initiative, which emphasizes consumer and social welfare.
“Those are the buzzwords, and a lot of these goals are set to be achieved by 2035,” she explained. “This is a place where caution is warranted.”
“China has made it very clear that they still want the capital to come in, but they want it on their terms and they want it on their exchanges,” Chang told CNBC.
Chang is a long-term China bull who believes the country is enormously under-owned by global investors, despite her near-term bearishness on the stocks. She believes that purchasing its bonds is a clever method to gain exposure to economic growth while limiting the downside risk associated with regulatory reform.
“The best way to play China right now is actually plain vanilla in the bond market,” Chang said. “Chinese government bonds still have a very attractive yield relative to the rest of the world.”
What you should know
- Beijing officials summoned Didi Global and Meituan, two ride-hailing applications, this week for non-compliance. Didi has lost 37% of its value in the last three months, while Meituan has lost 19%.
- China also wants more control over its publicly traded stocks. President Xi Jinping of China has stated that a stock exchange for small and medium-sized businesses should be established in Beijing.
- There also has been reports that exposure to U.S.-listed Chinese stocks is hurting hedge funds