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Investor overview September 2021

Investor overview

China is a short-term challenge, but a long-term opportunity.
The most cardinal theme of the month is none other than China. This is because China has introduced new regulations, which has had a serious impact on the price of several tech shares.

Investor overview September 2021

Many believe that China has turned against its own industry and is simply grinding some of its sectors. It is true and fact, like any decision, it has winners and losers.

I trust that by the end of the article you will see more clearly that there is no question of grinding, at least intentional crushing. If you understand why China has done it, you will also see that there is a shaky phase here, but it holds opportunity in the longer term.

Why is China important?

China is one of the largest economies. Merely because of its size, it is one of the most economically attractive areas for investors. It is one of the most dynamically developing areas, coupled with a very significant population.
If you look at the graph, you can see that China’s GDP has undergone very significant growth in recent years, which really hasn’t even been pushed back by the covid.

Developement of Chinese GDP

Now, however, Chinese decisions have seen a fairly significant decline in the share price of several Chinese companies in a very short time. The picture is nuanced by the fact that if you look at the Chinese MSCI index, you can see that every 3 years or so there is a bit of a halt anyway. It’s kind of a gathering of strength before the subsequent boom, and it’s just time for that.

MSCI China

Why has China stepped now?

These events did not start now, there were winds that appeared as early as last fall. One of these was the listing of Ali Baba on the U.S. stock market and Jack Ma’s statement at the time. The covid has accelerated some events, and as there will be elections in China next spring, social stability will be a top priority.

China’s economy under the covid

In the recent investor overview, I mentioned that where inflation is low, the state intervenes and carries out economic recovery. You can see in the picture that China also fell into the category where it was needed.

global inflation 2020

Like most states, China has taken the opportunity to print money. But with that, they didn’t quite achieve the effect they wanted. The scissors opened further, the rich became even richer, but the poor failed to catch up.

This, in turn, runs counter to the Chinese mentality.

Background of the current decision

There are 3 main trends in China, some of which have long been present in the economy, others have just emerged.

Revenue differences

While this is present in all countries, the situation has deteriorated particularly in China, with the central bank printing a significant amount of money due to the covid. The rich continued to get rich, while the common man saw little benefit in this move.
This is best observed and even measured in consumption patterns.

Aging population

China’s population is also aging. Although the one-child policy has been eased by the government, the birth rate continues to decline. This is explained by many as the increase in the cost of living. That is, among other things, housing and education, which have also been affected by the current regulatory change.

American-Chinese economic tensions

This topic alone would have many sides, but the relationship between the two countries is to put it mildly not stress-free, and some of the sources of tension are not possible to reverse, or only very, very difficult to reverse due to the decisions already made.

Key aspects of implementation


Stability here means political and social stability. That is, meeting the needs of the vast majority. And here by “working people” is meant not only the blue collar worker but also the white collar workers.
In a multibillion country, it’s not as easy as you think. Just a few thought:

  • they pay special attention to the health insurance of food couriers
  • limit the overtime of white collar workers (this is not a disadvantage, especially if you could work 0-24 in a home office)
  • regulate housing-related expenses
  • they also regulate the issues of education (their development has not been completed according to the Chinese, on the one hand they want to ensure a happy childhood
  • and on the other hand they need to find a balance in maintaining the quality of education for the future training system)


Under equality, not only equal salary comes into play, but also equality of opportunity. Education is also coming up, after all, paid education outside the school system, which has so far attracted many investors, does not allow for equality among students.

Innovation has always been, and remains, supported in China. This, in turn, is a politically sensitive year in China. And the big internet companies have reached a size where their power is no longer used as the Chinese idea is. That is, it is mostly used against competitors, and the Chinese state expects greater social responsibility.

What has changed in China?

The importance of China and its implementation has already been discussed, but not yet what it has done, which has become leading news. They made several decisions, the most important of which are:

Data handling

China’s data management policy is one of the world strictest, if not the most strictest. There are several reasons for this:

  • the data is not accessible by the State of China, but when used properly is a commodity
  • Chinese companies entering the US market can release data about the Chinese, and China is (somewhat rightly) afraid of this
  • without the release of data, companies can be further strengthened (this has also raised, for example, Facebook and Google), which already have political weight

This decision made it difficult for many technology companies based on data management to operate.


In China, as in many places on Earth, one of the most vulnerable sectors is the small and medium-sized enterprise layer. With this decision, it intends to prevent the further strengthening of the already huge companies (which could eventually contradicts the state) and to provide opportunities for new entrants. For those who are innovative, ready for development.

Even after this, two large companies can merge, but they will only be approved if they move in two different areas.

Education, housing

On the issue of housing, they regulated the cost of housing. This sounds strange from here, from a European point of view, after all, it goes against the free market, but remember that we are talking about a communist state, the possibilities and the values are different.

And in education, the state is trying to establish a new balance. Let’s look at the main points and you’ll see that there’s absolutely no easy situation with Chinese education:

  • All children should have equal access to education
  • Although paid after-school special classes have been required for successful enrollment, it is no longer officially possible to do so.
  • They want to reduce the burden on children, that is, let a child be child
  • They want to ensure the right level of knowledge for the rising generation

These have been accomplished with special hours paid so far through applications to which foreign investors have also contributed millions of dollars. It can currently continue to operate on a non-profit basis in the name of equality.

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Is the Chinese state crushing entire sectors?

It doesn’t crush, it changes. After all, on the one hand, these companies also pay taxes, and they have created and maintained a great many jobs, which the Chinese economy also needs.
They just want to steer their operations in a direction that everyone else finds useful.
After all, all that has happened now is that the Chinese State has changed focus. As long as these giant techies were small, they were given the opportunity to grow. Now as they are large, the focus is on raising new, innovative companies.

As companies operating on the internet have been given a relatively large amount of freedom over the past 20 years, they have been able to develop rapidly. Because they are already too big in the eyes of the state, they are “no longer so innovative”, but because of their size, the state expects them to be more socially responsible. This is why some tax benefits and tax breaks have been lost.

What is the next step?

China remains supportive of innovation, making it an excellent investment opportunity. Provided they find companies that adapt to regulation.

The Chinese market has always been volatile, perhaps it will remain so. The state strategy is to support bottom-up growth by creating larger local groups.

From now on, the Chinese government will place extra expectations on the issue of data security for companies that want to appear on the stock exchanges of other countries as well.

As many people have been surprised that China wants to change a lot of areas in a relatively short period of time, these processes are likely to continue for some time to come.

How has this affected smaller Chinese companies?

The greatest focus will be on strategically important innovative companies. The companies that are most dynamic in the technology, healthcare and consumer sectors have grown recently.

  • semiconductors: the sector, which is widely used in electronics, has received a great deal of emphasis, partly because of innovation and partly because of American regulation.
  • automation: robotics also appears here due to rising labor costs, almost substitute it.
  • software: covid is only accelerated on this as it includes online ordering, office application, communication and much more.

How did this affect Chinese multinational companies?

These large corporations have become so ingrained in the daily lives of the Chinese people that they have become virtually unavoidable.
Because they are dynamically growing companies, they have become so attractive not only to the Chinese people but also to investors that they have listed quite a few on U.S. stock exchanges.

Changing data management regulations has created uncertainty about how to proceed, and if investors don’t like something, that is the uncertainty.

Let’s look at some examples. What you will see about exchange rate falls is that none of them are directly related to the actual management, operation, or even production of companies. Without exception, the uncertainty generated negative investor sentiment caused the fall.

Changes in regulation from the Chinese and American sides, on the other hand, could lead to these companies simply being delisted from the U.S. stock market.

Ali Baba

It is none other than the Chinese Amazon.

Ali Baba exchange rate

News about them could be heard from last autumn, which is why the declining exchange rate can be seen (this can be observed from the beginning of the year anyway). What is striking, however, is that in the few weeks after the announcement, the exchange rate fell more in total than in the previous few months. This also shows investor uncertainty as it is not directly related to Ali Baba’s actual performance.


Tencent Holding exchange rate

It is a regularly used interface in Chinese communication as it also acts as a chat. Its main profile is the video game, which the Chinese State has portrayed as an “opium of the mind” and considered it particularly harmful among young people.

As a sign of Tencent’s cooperation (as well as at the “request” of the Chinese State), it has tightened young people’s access to video games, reducing it to an average of less than 1 hour a day. On the one hand, this was an actual cooperation on their part, and on the other hand, it did not involve a large resignation, only a negligible part of their total income was get from those under 18 years of age.

DiDi Global

DiDi exchange rate on the US stock market

Uber is the Chinese equivalent of the U.S., with the difference that it has more customers than the U.S. population. At the same time, it is perhaps one of the biggest losers on the subject. Although it was not clear from the sky that the Chinese State wanted to change the regulation, it still entered the US market. It may have done so out of greed, perhaps in fear of being left out, but it is also possible that he trusted in miracles.

What does it mean if Chinese papers are delisted from U.S. stock exchanges?

The fact that it has been introduced at all means that it must operate according to the rules of that particular stock exchange. Not only in size and turnover, but also in daily operation, including accounting. The U.S. passed a law last year that if it can’t account for them (i.e., not to the mainland, but to them), the company’s securities will be delisted.

With the entry of Chinese companies into the US market, the opportunity to buy has reached many more people, and liquidity has increased. Its price was upwards due to increased demand (at least that would have been the goal until regulation) and it was even easier to buy and sell.

This is exactly what the delisting reverses. Of course, there is only a problem on the part of investors if the company was only listed on that one stock exchange. If it is present anywhere else, the papers can still be sold, only after that it will no longer be on the US stock exchange, but on the Hong Kong stock exchange.

Regardless, delisting can easily bring a fall in exchange rates.
Although you can sell the same stock on any stock market thanks to the internet, it is either inconvenient or impractical for many people, so they sell it on time, they may have lost their confidence just because of the delisting, consider it too risky to keep there their money.

Is it advisable to invest in China now?

I cannot give a clear answer to this. On the one hand, I cannot give in this way (see the Investment Advisory Act), and on the other hand, there will only be a clear answer in about a couple of years.

Pros of investing in China

Price drop

The fact that there has been a price drop could mean that you can buy a discount on your favorite Chinese stock.

The operation does not stop

The companies most affected by this change are typically already large enough to stay afloat. What was not, is no more. Therefore, it is almost certain that the way they have been able to make a profit so far, they will still be able to solve this. At most, the profit margin will be slightly lower.


Chinese stocks are already characterized by a roughly 3-year reversal, a kind of cyclicality, and the time has come for that anyway, from now on the way up is expected.

Cons of investing in China

Different cultural environment

Remember that China provides a completely different cultural environment for companies to operate. They will probably have a different priority than what you consider important.

We have not yet seen the end of the transformation

The current situation is not a single player game, so no one can tell what the next step will be, where the situation will change. What the Chinese multis are doing, what the Americans are doing, maybe there is another player.

Chinese accounting is different

Chinese accounting has a much different mentality, much more permissive than European or overseas. Therefore, don’t even expect to get a credible picture that you can gain a credible insight into the life of even a large company. And that is a pretty big risk.

Why is this important to you?

If you have Chinese exposure

Whether directly in the form of stocks or as part of an investment fund (traditional investment fund or ETF), it is important to know what to expect.

If you don’t have Chinese shares

Then you don’t have to make a decision about whether to sell or hold your shares, but the word “Made in China” is sure to sound familiar to you. In addition to the fact that you have no investment in China, many other investors around the world do. That is why what China did with its own internal data management regulations was a shock.


  1. What do you see about China, where do you think it will move?
  2. Do you invest / would you invest in Chinese territory yourself?
  3. How do you see the impact of events on global markets?

What do you think about the topic? Feel free to comment on social media or contact us here.

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