Thursday 1 June 2023

China Loses Investment Money From Abroad

In the latest string of funds pausing investments in China, a Canadian pension fund has joined in after Singapore did the same. Article here

Is China Uninvestible?

This is an ongoing question among investors as they have seen the likes of Baidu, Alibaba, Tencent, ICBC, CCB, ABC beaten down such that the valuation ratios are at all time lows. 

I would attribute this sell down of China companies to sentiments.

Countries Lost Money Due to China Policies

Due to the clamp down with extreme regulations by the communist party since 2020, many countries soverign funds realised large amount of losses. Singapore soverign funds lost a few hundreds in millions in their investments especially after the regulatory clamp down by Xi Jinping. These led to many countries simply distrusting China due to its erratic system similar to the days of President Donald Trump. This is because their investment team has to add in another dimension of political risk.

With the loss of sentiments, China is seeing less investment money from abroad. Its own citizens too are growing weary of President Xi's regime and since the border reopening, capital flight has occurred. We have read news of wealthy china citizens setting up family offices abroad and renting properties to live overseas. While not openly said, I have noticed some China companies listed, outside of China, facing difficulty in moving money from China to where they are listed.

PMI Not Growing

Manufacturing has not returned to China as its labour cost base has risen. This has resulted in PMI figures contracting based on the latest data. These again is likely due to the negative sentiments to Xi Jinping's rule in China and the lack of faith in the policies of the communist party.

With the move away from relying on China, expansion of factories are now situated in Vietnam and Thailand. This has resulted in China not growing much.

Right now, due to the mismanagement by the President over the past 3 years and companies diverisfying away from China, money is moving out to greener pastures where governments are making better policies. Sentiments towards China is bad and as a result, despite the RMB devalution, no one wants to put money into China.

Until the communist party finds a way to improve the sentiments, the valuation of its companies are going to be low. Companies like TSMC and Nvidia have flown the flag high for Taiwan while on the opposite side of the coast, the sentiments are as low as the low tide. This has made the valuation of the 5 largest companies in China lower than that of TSMC and Nvidia combined.

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