It would be nice to have a crystal ball that can show us when the impact of the regulatory crackdown in China would end, as well as where this is all heading – but that’s really just wishful thinking. I myself bought shares at Alibaba at the psychological support level of $200, only to see it bounce off to $150 late last week.
While there’s no shortage of opinions about China’s situation online, there are some opinions that I think are worth noting. In this article, I’ll be sharing some insights from industry experts, as well as share my own humble opinion. Additionally, we’ll take a look at how the technical details are shaping up for the iShares MSCI China ETF (Ticker Symbol : MCHI).
Summary of China’s Crackdown, in 3 charts
It’s one bad news after another: the initial crackdown on ANT financial happened, then regulators took on other firms such as Didi and Tencent Music. And the bloodbath didn’t stop there – even the education industry wasn’t spared as regulators stepped in to “nationalise” it.
Just last week, the latest regulations on age restrictions (gaming) were released and we’re now left with a lot of uncertainty as to what will come next. Many of us here have not been spared by this bloodbath (myself included). But now is the time to ask, where exactly are we right now? Is this the end for Chinese tech companies or is this a major buying opportunity?
For the most part, the general consensus is still bullish. But due to recent events, I think there is a need for us to be a little more nimble and careful when it comes to our portfolio allocations and exposure to the Chinese market. That said, here are some notable opinions of prominent investors in the industry.
What are the Prominent Fund Managers doing now?
Cathie Wood
Overall: Bullish
Present Actions: Slower Growth but growth nonetheless, Buying into companies not under government pressure. Selling BABA, Buying JD & PDD
We all know the esteemed brains behind the success of ARK Invest, so I believe she needs no further introduction. Recently, her actions have had quite a bit of media coverage as she initially sold out in early August, only to buy back in a few weeks later. While her recent actions have puzzled me, I believe that looking at the longer time frame, she is still bullish on Chinese stocks.
HOWEVER, she thinks that growth may be less than forecasted in the long run, due to the fact that there is now “less incentive” for companies to be innovative and grow. This is indeed an objective point of view as she is basically saying, yes growth will continue, but it just won’t be as exponential as before.
“Just looking at the situation, that the incentive(s) to become incredibly successful in China are diminishing somewhat now that the government is addressing concern.”
Cathie Wood: Here’s Why I Had To Sell Out Of China
Charlie Munger
Overall: Bullish
Present Actions: “The big money is not in the buying nor the selling but in the waiting.” aka “HODL” – Hold on for Dear Life
Early this year, Charlie Munger bought 165,320 Baba shares at about $255. Baba currently makes up 17.6% of his portfolio. While he hasn’t come forward to talk about his position at this time, we can only speculate if he really knows what he is doing. By and large, I would conclude that he is bullish because he would have sold out if he wasn’t.
George Soros
Overall: Bearish
Present Actions: “Pouring billions of dollars into China now is a Tragic Mistake”
Soros has always been bearish on the Chinese economy over the years and recently, he even called Xi Jinping “the most dangerous enemy of open societies in the world.” He cautiously warns that:
“Xi’s crackdown on Ant Group’s initial public offering and ride-sharing giant Didi Global means Xi’s party is making all mainland companies ‘instruments of the state.’ A stealth nationalization of the private sector.”
Technical Analysis of the China Stock Market
What is the iShares MSCI China ETF (Ticker Symbol : MCHI)?
The iShares MSCI China ETF seeks to track the investment results of an index composed of Chinese equities that are available to international investors.
Investment Objective
With some of the most prominent Chinese companies in this ETF, the iShares MSCI China ETF serves as a good benchmark for us to get a more macro view of what’s going on.
Since there is too much noise on the daily, I’ll be analyzing the chart on the weekly.
- Head & Shoulder Formation. This formation is consider a bearish signal, as it shows that the price action is unable to support the continuation of the trend.
- With structural support holding at $67, this is indeed a price point where the bulls and bears have locked horns. Previously, this was an area of resistance which broke past its second attempt for the bull rally to continue. We are now back to this crucial support zone.
- Its no coincidence that the linear support line has converged with the structural support line. After all, most trading algorithims and programs make buy or sell trades on such signals.
In terms of our direction from here, the bear rally is still likely to continue in the short to mid-term. This is because we see the price action not only forming a series of lower highs and lower lows, but also the downward momentum of the RSI is consistent with the price.
On a broader term, the last time the RSI reached current levels, the price was approximately $53. Since we once again saw such severely oversold levels with the price at about $65, I would say that on a longer-term horizon, there is still strength in the stock and it is still mildly bullish.
My Personal Opinion
I think that the fundamentals have not changed, the companies before and after the crackdown are still pretty much the same. It is impossible to completely halt the growth of tech, so I’m on the side of the fence that believes this is just a temporary bump in the road.
My personal observation is that the regulations do not seem to be affecting industries equally. For instance, the EV and property sectors have been relatively unfazed by recent events.
However, I do acknowledge that the risks are indeed higher right now, and because of this, I’m being a tad more nimble and careful when it comes to setting up buy orders at each major oversold point.