If 2022 was the Year of the Bull for global tech stocks, then 2021 was undoubtedly the Year of the Bear. We all remember the epic rise of Cathie Wood’s Ark Innovation Fund, which posted 400% gains over a period of less than a year in 2020, something virtually unheard of for such a diversified product as an ETF. Perhaps less unexpected was the equally epic collapse that followed, with the fund losing close to 65% of its value last year.
This trend was replicated across virtually all tech-sector growth stocks worldwide, with a couple of notable exceptions. But the effect was even stronger in China, where a combination of domestic governmental crackdowns and US delisting fears both restrained growth in 2020 and aggravated losses in 2021-2022. Nevertheless, recent developments suggest that there may be light at the end of the tunnel, prompting many investors to ask: is now the time to buy China?
China has always been a minefield for western investors. The inherent risk of the Variable Interest Entities (VIEs) used by most Chinese firms to sidestep foreign ownership regulations, the opacity of these structures in terms of auditing and reporting, and, of course, the unpredictability associated with the Chinese Communist Party’s (CCP) power over the fortunes of individual companies. All of these factors were involved in some way or another in the protracted bear market that has lasted almost 18 months, but it appears that these concerns are finally being addressed (at least in part).
Following a double-digit drop on Tuesday, Chinese tech giants Alibaba, Baidu and Ten cent posted their biggest single-day gains since 2008, rising 27.30%, 20.40% and 23.15%, respectively. This comes after China’s Vice Premier Liu He commented that the government would “support various kinds of businesses’ overseas listings”, assuaging fears that China would look to block foreign investment altogether following the CCP’s release of its stringent foreign IPO rules last summer.
trouble The Chinese tech slide really began back in November 2020 with the crushing of the Ant Group IPO and the introduction of harsh antitrust regulations. Things then went from bad to worse with the Alibaba probe and the mysterious disappearance of Jack Ma in late December of that same year. Following the re-emergence of the Alibaba CEO and the final isation of the new antitrust laws, it looked as if the worst was behind us to that point, the damage had been largely local to BABA, but then the CCP turned its focus towards Ten cent and Meituan, imposing Ant-style curbs on the fintech arms of these two giants and 11 other Chinese tech firms. The summer of 2021 then saw the hotly anticipated US IPO of “the Uber of China” Didi. Two short days later, Chinese regulators launched a probe into the ride-hailing leviathan, ordering it to halt new account registrations. Then came new cybersecurity rules for companies listing shares abroad, weekly limits on children’s gaming and a hefty fine for Meituan. A double whammy