21.03.2022 – Due to the Ukraine war and the interest rate turnaround in the USA, an important market has recently been somewhat forgotten. But now China is back: An interesting turnaround has taken place in the Middle Kingdom. The communist party has ended the attack against its most successful corporations. Verbally, at least. Will the thaw last?
Until the beginning of last week, there was a real slaughter on the Hong Kong and Shanghai stock exchanges. As a result, the US investment bank JP Morgan called the entire Chinese tech sector “uninvestable.” The experts advised against buying into Alibaba, for example. On the Nasdaq, the Golden Dragon China Index slid 13 percent in response to this analysis. But Alibaba, of all stocks, turned into a thunderous price rocket since mid-week. Here is the four-hour chart of Alibaba – there is still a long way to go to the old price highs at around 320.
This is what had happened: Beijing had brought the market to its knees in recent months with an unexpected and radical wave of regulation by the party leadership against all Internet companies. We had reported on this. On the one hand, this was about breaking up oligopolies and allegedly about customer data protection. Above all, head of state Xi Jinping wanted to put his most successful entrepreneurs in their place – the red emperor does not tolerate any overconfident princes next to him. Countless successful high-tech companies were prevented from listing on the New York stock exchange. Founders said goodbye, companies fired employees.
Turnaround in Beijing
But midweek, the bullish intervention from Beijing. Liu He, Vice Premier of the People’s Republic of China in charge of economics and finance, signaled a willingness to talk about overseas listings and corporate loans. Liu He is regarded as the right-hand man of the President of the People’s Republic, and his word carries weight: he promised to introduce measures to support the economy and to support initial listings of his companies abroad in the future. In a coordinated action, the Ministry of Finance, the central bank, the supervisory authorities in the foreign exchange market, the banking and insurance sectors also promised to do everything possible to stabilize the market and strengthen the economy. On the Nasdaq, the previously battered Golden Dragon China Index took off by about a third after the news.
The bottom line is that it is completely impossible to predict whether the new bull market will carry and whether the red rulers will now leave the economy alone. Apparently, a power struggle is raging between realists and ideologues in the Communist Party. Given the Corona fallout and the economy’s contraction, realpolitik may again be the order of the day. If that continues, there is some catching up to do for the bulls. However, it is unclear whether China, as a supporter of Russia, will not be subject to sanctions. Whether long or short – Bernstein Bank wishes good luck!
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