Bloomberg’s John Authers has a reputation to defend. In his latest
update, he is particularly concerned about Chinese stocks. There is the underperformance of China vis-a-vis Western markets. Then, China’s economic data cannot be trusted and are undershooting this year. Retail sales, always a matter of concern to Western pundits but consistently performing, are allegedly not recovering to plan. Worse, the National People’s Congress underwhelmed with its objectives for the future.
Right in his wake, Bloomberg issued another
report that the Chinese leadership and Xi Jinping, in particular, will be going after the country’s platform businesses and crack down on data-heavy companies, from e-commerce to social media. This again comes after yet different reports that the regulator has been targeting Tencent for its anti-trust behaviour, much like it did with Alibaba last year when the Ant Group’s IPO went up in flames because of this new scrutiny.
To be sure, Alibaba and Tencent are being in the crosshairs of government and regulator. Their anti-trust behaviour has become more transparent as the duo morphed into an oligopoly of sorts. But as I said in Monday’s
post, it’s not that the government’s position is to act irrationally. Beijing commissioned the buildout of a 5G broadband network across the country that costs hundreds of billions of dollars equivalent, and it is certainly not designed to cater to and be exclusively used by the two behemoths.
The super-highway is meant to serve almost as a public platform to be equally made available to incumbents and future start-ups. For the regulator to intervene is only natural and logical and will in the long-run benefit everyone. Also, the government hasn’t exactly acted unreasonably when it required Ant Group to reduce its leverage and put up more capital for its business. And Pony Ma has the advantage of knowing what’s coming. He and his lieutenants are prepared.
At the same time, it is very unlikely for China’s leadership to want to cripple its most successful entrepreneurs and globally renowned flagship companies. Jack Ma’s wings may have been clipped for entirely different reasons than Alibaba’s anti-competitive behaviour. As an investor, one obviously looks to the edge and advantage of a company in the marketplace and over its competition. However, one would also want to have an eye on the entire ecosystem to work and blossom like clockwork.
Bloomberg may be as scrutinising of China as a Western-leaning media outlet is, but this cannot distract from the fact that Beijing’s execution of industrial policy has been near flawless for the past couple of decades. At a minimum, it can certainly withstand any comparison with the modern world and, particularly on the technology front, I believe there has never been a nation that managed a more rapid rise in its capabilities and outline of its future endeavours.
Should investors shy away from this growing range of world-class companies’ stocks as John Authers suggests? Of course not. The pullback we witnessed in Alibaba, Tencent and others, 20-30% from their respective highs, may well have been overdue and just open another chance to increase China exposure. In case of doubts about single stock engagements, the Hong Kong Stock Exchange has helped out by recently establishing a Tech Index covering the top 30 Chinese names.
The <3033_HK> ETF is the super-liquid instrument corresponding to the index, and its price corrected by 25% in the last 4 weeks. So, if one defies all these allegations that the government is out to destroy their corporate flagships, trusts the regulator to create a more even-level playing field for everyone on the country’s 5G super-highway, and believes in the continuing growth of China’s tech- and platform businesses, then this could be a good choice.
In addition, Alibaba and Tencent only make up for less than 15% of the ETF’s asset value, and you could argue that its distribution is much more aligned with how the government sees a diverse corporate new economy landscape evolving.
