Chinese listings in the United States reached a record $12.8 billion already this year, but stocks glowing with potential have taken a particularly hard tumble in recent weeks. The China regulators are wielding their power, first moving the goal posts for after-school tutoring companies before lining up tech stocks in the cross-hairs.
Investors are fast wising up to the inherent risk embedded in Chinese stocks. However, as talks take place between China’s securities regulator and its US counterparts to increase transparency and rebuild investor confidence, now may be the best time to buy.
The events leading up to this saw a sell-off in Chinese stocks that displayed the hallmarks of a contained pullback, before plunging into panic. China sent the market into a spiral after informing for-profit education companies they would be restructured as not-for-profit, prompting the price of New Oriental Education & Technology Group (EDU) , TAL Education Group (TAL), and others to crash. A move to reduce the importance of wealth and education gap creating "Cram Schools".
This was the latest in a series of message-sending activities from China, among the most significant being the halt of the IPO of Jack Ma’s Ant Group, and the forced removal of ride-sharing service Didi Global (DIDI) from national app stores just days after its US IPO. The unpredictability of Beijing’s next move has investors jittery as they attempt to predict which industry will be targeted next.
According to Reuters, the US Securities and Exchange Commission has frozen the processing of Chinese IPOs on US exchanges as it works to develop new rules that will promote transparency into regulatory risks.
China has since stepped up attempts to calm the waters, as the securities regulator met with executives from top global investment banks to offer reassurance, suggesting that measures to further open capital market to foreign entities were in the pipeline.
Further, the Politburo met to signal support for the economy, which boosted Chinese sovereign bonds. National media reports have also rallied, claiming Beijing remains supportive of domestic companies seeking to list in the US and other foreign markets.
The debacle has been costly for China, wiping more than US$570 billion from Chinese stocks at home and abroad. With cooperation so clearly in the nation’s interest, now may be the best time to enter the market and snap up Chinese stocks before the bounce back.