Author: Ajay Mohanty, Head of Investment Advisory at Xanara
Most investors are currently grappling with the age-old trade-off of avoiding trying to catch a falling knife vs bottom fishing and trying to get a few bargain buys.
There is one element that is constant and change, we need to understand the change and how it will impact the society, the consumers, and the companies. That’s exactly what investors need to do to try and evaluate potential long-term opportunities once the dust settles.
China and regulatory headlines are not strangers. We have seen it in the past as well but this time it came fast, it came quite broad across sectors, and it came serially that is one after the other. All this means uncertainty but definitely opportunity!
Over the last 12 months we have seen a lot of regulatory policy action from China on the property sector which is based on the thesis that houses are for living and not for speculation and we have also seen lot of regulatory action around deleveraging especially around shadow banking.
While regulatory uncertainty and volatility is not desirable, some of these changes might end up being positive in the longer term.
We are mainly talking about a regulatory catch up in the internet sector. The internet sector has grown by leaps and bounds in the last decade on the back of continuous innovation on the technology and financing front, but very lax regulatory framework also helped these very high levels of growth. Now the rules are being defined so that these companies don’t have monopolistic behavior, Gig workers are treated well and there are regulations around data privacy and data security.
Merchants selling goods online had to choose one of the platforms for exclusive distribution and you would not be allowed to sell your goods in other ecommerce platforms. Now the government intervened and made sure that the merchants are able to sell their goods in different platforms (This is one of the anti-trust measures). Delivery drivers will have access to medical insurance, social security and they will earn wages above minimum wage.
The recent panic move in equities came after China said it is studying proposals to further ensure the rights of drivers who work for online companies and to step up oversight of the live streaming industry. Sentiment also soured after Tencent warned the industry to prepare for more regulations including potential substantial changes to how companies use data for advertising.
The fierce selloff has prompted some global fund managers including Cathie Wood to dump their holdings in Chinese stocks over the past few months. In fact, some investors are questioning allocations toward Chinese assets altogether.