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CHINESE LISTED TECH STOCKS SHAKEN BY GOVERNMENT INTERVENTION

  • CHINESE LISTED TECH STOCKS SHAKEN BY GOVERNMENT INTERVENTION

    CHINESE LISTED TECH STOCKS SHAKEN BY GOVERNMENT INTERVENTION

    Data Sourced from FE Analytics, and Bloomberg Finance LP

    CHINESE LISTED TECH STOCKS SHAKEN BY GOVERNMENT INTERVENTION

    This week we saw the Chinese government decide it was time to cut some of the country’s most successful businesses down to size. While the Chinese Communist Party is always keen to make sure no person or company gets too powerful, this time it has turned its attention to an entire sector. Chinese internet companies, that had been a runaway success story to rival their western counterparts like Google, eBay and Facebook, now appear to have a smaller part to play in the nation’s development. While it’s not possible to know what’s on the mind of the political party, it seems a renewed focus on hard tech, manufacturing, and engineering rather than consumer services has something to do with it.

    Elsewhere it appears the fight against the Delta variant of Covid-19 might be turning a corner. The number of new cases in the UK has started to fall after rising exponentially for weeks, while vaccination rates in much of Europe have picked up significantly after a slow start. However, the UK’s decision not to vaccinate teenagers looks to be limiting the number of people left to get a jab.

    US: FED MAINTAINS MARKET SUPPORT AS GDP GROWS LESS THAN EXPECTED

    The US economy has continued its rapid recovery from last year’s recession as the latest data shows it growing at an annualised rate of 6.5 per cent. This is a slight increase on the 6.3 per cent seen in the first quarter of the year but it was short of analysts’ expectations. Financial markets had expected to see growth around 8.5 per cent and the undershoot caused the value of the dollar to fall to its lowest level since June.

    Weaker growth highlights the difficult decision facing the US Federal Reserve. The central bank left interest rates unchanged at its monthly meeting this week and maintained its monthly bond buying programme at $120bn, despite lingering pressure for it to address rising inflation. Its ongoing dilemma is the risk of maintaining support for too long and fuelling inflation or raising interest rates too soon and snuffing out economic recovery. US equity markets rose on the back of the slower than expected growth figures as investors expect the central bank to leave market support in place for longer.

    CHINA: MORE GOVERNMENT INTERFERENCE CAUSES SHARP FALL IN SHARES

    Beijing’s crackdown on the education sector earlier this week sparked a sell- off in Chinese stocks. The Chinese government’s new regulations are designed to ban companies that teach school curriculum subjects from making profits, raising capital, or listing on stock exchanges worldwide, to prevent them from accepting foreign investment. These policies follow recent Chinese government actions to control fast-growing tech giants and increased fears among global investors of further regulatory tightening in sectors other than technology and education.

    Following the news the Nasdaq Golden Dragon China index, which tracks Chinese technology stocks listed in New York, fell almost 22 per cent, putting it on course for its biggest monthly fall since 2008. Shares in internet groups also dropped significantly, as Tencent and Alibaba fell about 10 per cent and 7.7 per cent respectively, while delivery platform Meituan dropped 17 per cent. The fall in Chinese stocks also has the potential drag on performance of emerging market funds this month given their considerable contribution.

    EQUITIES: TRAVEL STOCKS BENEFIT FROM EASING OF TRAVEL RESTRICTIONS

    The government has announced that from next week vaccinated travellers from the US and most of the EU will be allowed to visit the UK without having to quarantine. The move is a boost for airlines as well as the beleaguered domestic tourism industry. The changes also see international cruises permitted for the first time since March 2020. While many areas of the economy have been able to return to pre- pandemic levels international travel remains far below the level seen in 2019.

    The easing of restrictions will see many airlines finally able to increase their capacity. This week Ryanair and IAG, owner of British Airways and Iberia, released their latest earnings results and both expect to rapidly increase passenger numbers. Ryanair expects to be carrying 90m to 100m passengers this year, compared with 149m pre-Covid. IAG is expecting to fly 45 per cent of its usual schedule, up from 20 per cent in March. Travel and tourism stocks have lagged in recent months but recent optimism has seen many stocks recover some of the lost ground.

    For more information regarding our weekly market reports, we encourage you to give us a call on 01732 746188 or send us an email at enquiries@foxgroveassociates.co.uk.

    This document has been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. Financial Express Investments Ltd, registration number 03110696, is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit https://www.fefundinfo.com/en-gb/about/legal-and-policies/.

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