Too soon for investors to breathe easy

Editorial | Mary Ma 30 Jul 2021

US billionaire Cathie Wood's announcement that her investment flagship vehicle has sold nearly all its Chinese stocks was bound to raise eyebrows as many of her followers had been following her as the pointer.

Wood's turnaround added pressure to Chinese stocks, leaving her followers floundering

The China Securities Regulatory Commission's high-level meeting with some international banks, together with a Xinhua News Agency article playing down the recent crackdown on certain industries, was instrumental to yesterday's rally that helped the Hong Kong market recover part of the losses inflicted during massive selloffs earlier in the week.

While investors breathed a sigh of relief, it was far too soon to predict clear skies ahead.

According to Bloomberg, CSRC vice chairman Fang Xinghai met with a few international bankers on Wednesday evening, easing market fears about Beijing's most recent clampdown on the private education industry.

At the same time, Xinhua also ran an article assuring that the recent crackdown on some companies and sectors was selective, targeting the organizations and segments concerned only to protect the country's online data security and social welfare.

The messages that the central authorities in Beijing sought to impress upon the international bankers were straight forward.

First, what has been going on is not a blanket curtail. And second, the central government maintains an open attitude as to where mainland companies may choose to list their shares - a concern brought up by Beijing's investigation into ride-hailing app Didi after the company successfully launched its initial public offering exercise in New York.

Foreign funds have been monitoring the development with increasing concern since the beginning of the year when it became impossible to miss Beijing's clampdown on tech giants, starting with Ant Financial's ill-fated IPO and, more recently, Didi's plight.

This week, the last straw was laid on the camel's back after the central government announced on short notice the ban on online education companies.

Official documents were published banning these companies from teaching courses at schools and from raising foreign capital.

Worse still, they were required to be registered as nonprofit entities.

Overnight, the education industry that reportedly hires 15 million workers saw much of its value evaporate.

Beijing has a history of acting to stabilize swings with an upbeat tone. While investors have got used to this normal cycle of alternating between crackdown and support, assurances reportedly offered by Fang and Xinhua were - understandably - viewed by the market with a sense of caution.

The rebound of over 800 points in the Hang Seng Index was a technical rally after massive selloffs more than a turnaround in the fundamentals of the situation. Factors that have been affecting the market have not yet disappeared.

For one, Sino-US tensions are still high - the recent meeting between Wang Yi and Wendy Sherman in Tianjin has not made conflicts any less likely.

It is unlikely that this summer will be calm as hoped.

While it has been Beijing's practice to alternate tightening with easing as it regulates the market, the overall trend has not changed.

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