China makes market tea leaves very hard to read - Reuters

hard.indah.link

China's President Xi Jinping drinks from a tea cup during the opening session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China, March 5, 2017. REUTERS/Jason Lee

HONG KONG, July 28 (Reuters Breakingviews) - Chinese stocks are having their Wile E. Coyote moment. An unrelenting stream of crackdowns out of Beijing has finally prompted investors to look down and realise they’re over the cliff’s edge, plummeting into bear-market territory. Some sectors have been spared, but only the truly daring will venture into riskier areas now.

The tea leaves might have been hard to read, but they were clearly steeping. Over the past year, warning signs have included tough new limits on the indebtedness of real estate developers such as China Evergrande (3333.HK); hiking taxes on e-cigarette makers, including Rlx Technology (RLX.N), because of unspecified “new problems”; raising the regulatory burden on financial technology firms, which derailed Ant’s $35 billion initial public offering; and challenging the dominance of online titans Alibaba (9988.HK) and Tencent (0700.HK).

Probes into ride-hailing company Didi Global’s (DIDI.N) data security and fresh curbs on the ability of Chinese companies to raise funds abroad elevated concerns. Then came scrutiny on wages for delivery workers and forcing the $120 billion education industry to become non-profit. The complex structures known as variable interest entities used to sidestep foreign investment rules also now seem endangered.

The CSI300 benchmark is down 18% from a February peak while the year-old Hang Seng tech index has lost 21% this month. Tencent shares have tumbled 25%, those of food-delivery service Meituan (3690.HK) are down a third and tutoring stocks have cratered as much as 80%. Lurking further down the supply chain are some winners. Ganfeng Lithium (002460.SZ), which produces the battery ingredient, has gained 61% this year. And the $28 billion chips-to-capacitors producer Naura Technology (002371.SZ) is one-third more valuable than it was in June. Although consumer-facing stocks are getting whomped, manufacturers still need materials and widgets.

If previous Chinese enforcement actions are any guide, this selloff may have longer to run. Internet stocks tanked 42% in 2018 when Beijing clamped down on video-game developers. This time, the sector is down 41% since February in the face of far more wide-ranging action. It also is trading on 24 times profit, above the 22 times reached four years ago, according to Jefferies analysts. In the cartoons, the coyote always comes back for more. Even for today’s exuberant investors, it may be too soon.

Follow @JennHughes13 on Twitter

CONTEXT NEWS

- The CSI300 index on July 27 tumbled to an eight-month low as investors feared the impact of tighter Chinese government regulations across multiple sectors.

- Tencent shares were down almost 3% in morning trading in Hong Kong on July 28 after falling nearly 9% a day earlier following its announcement that it had temporarily suspended registration of new users to its WeChat super-app for technology upgrades to comply with relevant laws.

Editing by Jeffrey Goldfarb and Katrina Hamlin

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

Adblock test (Why?)

The Link Lonk


July 28, 2021 at 12:10PM
https://www.reuters.com/breakingviews/china-makes-market-tea-leaves-very-hard-read-2021-07-28/

China makes market tea leaves very hard to read - Reuters

https://news.google.com/search?q=hard&hl=en-US&gl=US&ceid=US:en