Do you want invest in China? Victor Koch Opinion
Most Chinese tech companies listed in the United States or Hong Kong have seen massive sell-offs, pushing prices to all-time highs. The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, has fallen sharply since November 2008. Analysts call the decline "scary," even in a volatile market.
The index fell 7.2% on March 14, 2022 and another decline of 6.6% on March 15, 2022. After a strong performance in 2020, many Chinese technology companies listed overseas saw a steady decline last year. The market change from February 2021 to March 2022 has been a big one for the eleven most famous Chinese technology companies with Alibaba's market cap reduced by 66%, Tencent by 50% and PDD, a platform that increases market e -business, by 82%. % Many famous names fell by double digits - JD.com by 7.14%, Ndewo Group by 5.74%, Baozun by 10.43%, iQIYI by 16.74% and Zhihu by 16.14%. The MSCI China index has seen its value more than halve since February 1. Top 2021. The sample trades at around 9 times its estimated forward 12-month earnings, compared to a five-year average of 12.6
Recently, JP Morgan Chase downgraded many Chinese technology products, starting with JD.com, a direct seller in China, from weight to weight and lowered its price from $100 to $35. This was done individually and came in response to falling prices in the region and a more difficult economic situation.
Negative Point
The recent decline in Chinese technology stocks is such that investment banks such as JP Morgan Chase and Goldman Sachs are calling Alibaba, Tencent and Meituan now "insolvent" in the next 6-12 months. Risks related to Russia, the domestic spread of Covid-19 and strong market conditions are the main contributors to this market decline. First, in the middle of the geopolitical conflict between Russia and Ukraine, the United States and other European countries will impose sanctions on China, making the economy stronger at a time of weakness. Second, China shut down the technology industry in Shenzhen for more than a few weeks to fight the spread of the Covid-19 virus in the country. Although this may not be directly related to product performance, it leads to supply chains and geopolitical issues that keep manufacturing away from China and can be a drag on China's economy. . Finally, recent regulatory changes are making investors less likely to invest in Chinese currencies. Tencent Holdings Ltd., the owner of the super app WeChat and one of China's biggest tech companies, was fined heavily for violating China's anti-money laundering laws, sending the company down more than 10%.
A slide in China's tech market fell after the US regulator downplayed the prospect of an imminent deal to keep local companies listed on US stock exchanges. The Securities and Exchange Commission has identified a number of Chinese companies that are at risk of being pulled out of the United States, in an attack by foreign companies that refuse to open their documents for scrutiny by US regulators. The SEC added Baidu Inc. and their recent listing for banning research claims. Despite all these factors, some analysts believe that China's technology products are no longer profitable. Investors are hungry for returns and it is increasingly difficult for these companies to post green results as they are constantly pressured by regulations, national economic downturns and political factors. others. In addition, the large economy has become weak, especially domestic consumption, since these companies operate in China China, they are always suffering from the lack of customers who want.
Rebound
Share market in Hong Kong in China showed a significant rebound in performance after the China State Council promised to promote the financial market by easing some standards in the tech industry, providing support for property development and, in general, stimulating the entire economy and wealth. Following the announcement, China's benchmark CSI 300 index gained 4.3%, Hong Kong's Hang Seng Index jumped 9.1% and the Hang Seng China Enterprises Index rose 12.5%, in March 2022. It also boosted the stock prices of China's two largest technology companies, Alibaba Group Holdings and Tencent Holdings, by more than 20%. We are seeing clear structural changes in China's industrial policies and regulations, especially in the technology sector. In the short term, this may cause problems in the form of slow growth or profitability, but it helps to create long-term benefits such as a healthier competitive environment, ESG values are high and ultimately sustainable growth. Investors also received an optimistic signal when the president of China held a meeting to stabilize the capital market and called for further regulation and restraint in the face of opposition to the law, which happened immediately and returned to these products. The big brother, "Beijing", tried to calm the nervous stock market at the meeting and encouraged other government agencies to work with the financial regulator before announcing the measures. can damage the market.
What about Pre-IPO Companies?
Beijing is now stepping up monitoring of the flood of Chinese listings in the United States, which is the technology industry. The State Council also announced that foreign registration laws will be made for domestic companies and stricter restrictions on data entry across borders and security. The tech crackdown is a common occurrence and market analysts believe that it will not only threaten the ongoing IPO, but it may also put pressure on the popular Chinese ADR market. Chinese regulators are considering a rule change that would allow them to block domestic companies from registering in the United States, even if the group's shares are incorporated outside of China. The move could be a setback for Chinese companies that have clamored for a New York listing in recent years. New registrations may be few and slow in the United States due to government restrictions. Investors may want to reconsider before betting on Chinese tech startups as some new regulations have been imposed on domestic companies looking to go public in the United States. Many analysts are of the opinion that Chinese companies seeking to raise capital may have high uncertainty in the way they list on the public market, which may lead to lower prices. Beyond these technical complications, the new regulations may mean that similar IPOs in the future will go to Hong Kong. Facing the possibility of low returns - or the inability to exit the investment in the foreseeable future - many investors in China are holding back on new bets. Chinese IPOs in the United States were heading for a banner year in 2021 until the listing of Chinese company Didi in late June on the New York Stock Exchange caught Beijing's eye. Within days, China's cybersecurity regulator ordered Didi to suspend user registrations and remove its apps from app stores. The move exposed significant compliance risks for Chinese companies at home and marked the beginning of a reform of the overseas IPO process.
The path to an IPO in the Chinese market looks uncertain. For Chinese companies applying to the US, they must expect stricter regulations from both sides and a higher degree of scrutiny in the market. Moreover, it could also lead to a potential downfall in the company’s valuation and dampen investor sentiment, thereby making it more difficult for such companies to raise funds in the US. According to the Hong Kong Exchange website, more than 140 companies have filings for Hong Kong IPOs. This just makes us conclude that the Hong Kong market might be an alternative for Chinese companies to go public and might best suit the sentiment of investors. Even though the markets have been brought under control, it might not be the perfect platform for companies to go public at this time in the economy.
Who is Victor Koch?
Mr. Koch — serial entrepreneur, wall street worker and late-stage investor specializing in secondary shares.
Previously: Twilio, Xiaomi, iQiyi, PinDuoDuo, Tilray, Livongo, Agora, Bandwidth, Kuaishou Technology, DataRobot, Robinhood, Chime, TransferWise, Oatly, Hims, Wise, Stripe, Kopi Kenangan, Toss, Coursera.
Currently: Enflame, Intercom, Horizon Robotics, FaDaDa, Wise, Epic Games, Hai Robotics, Automattic, Fiture, TigerG, and other
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