Market mavens downplay regulatory uncertainties, swear by good firms
Foreign investors remain upbeat about the long-term performance of overseas-listed Chinese companies with strong fundamentals, though regulatory uncertainties may continue to cloud the sector in the near future, market masterminds said on Tuesday.
What prompted their observation was offshore-listed Chinese companies’ continuing unease over uncertainties surrounding relevant regulations and stricter supervision over sectors like the internet and education.
“The uncertain evolution of regulation has affected the level of valuations,” said Christophe Donay, head of asset allocation and macro research at Pictet Wealth Management, a Swiss firm.
“On a long-term perspective, however, we believe that innovation remains a fundamental driver of economic growth. Truly innovative, disruptive (Chinese) companies remain attractive for long-term investors who will back them, especially in the current low-yield environment, which is expected to endure,” Donay said.
Channel Yeung, a market analyst at FXTM, a UK-based global trading platform, said policy moves regarding overseas listing, data security and potential or perceived monopolies may continue to prove disconcerting to overseas-listed Chinese companies.
“But, new regulations to be rolled out may provide more policy predictability, so stocks of overseas-listed Chinese companies, especially prominent tech names with sound fundamentals and considerable market share, will bounce back and refresh their appeal for global investors,” Yeung said.
The S&P US Listed China 50, which tracks the 50 largest Chinese companies listed on US exchanges by market capitalization, has dropped by 18.68 percent to Monday’s close at 3906.17 points since the beginning of the third quarter. Market people attributed the plunge to intensified uncertainties.
The market is closely watching how the world’s two largest economies — the United States and China — will cooperate to solidify the regulatory foundation for listings by Chinese firms in the US, which has become a key issue as China stepped up efforts to ensure data security while the US requires stricter disclosure by listing applicants.
In a meeting on Friday, the Political Bureau of the Communist Party of China Central Committee stressed the need to improve the regulatory system on firms’ overseas listings.
Experts see the move as a declaration of the leadership’s determination to continue to support Chinese firms getting listed overseas while strengthening supervision over cross-border data transmission entailed by such floats.
Earlier in July, the Cyberspace Administration of China unveiled draft rules that require online platforms that carry personal information of more than 1 million users each to get reviewed by the administration before listing overseas.
On Friday, the US Securities and Exchange Commission announced Chinese companies seeking US floats will need to disclose additional information, including whether they have received permission from the Chinese authorities concerned to list on US exchanges.
In response, the China Securities Regulatory Commission has called for closer communication with the US side to properly address the issues pertaining to US-listed firms operating in China.
Though believing that overseas-listed Chinese companies with solid development prospects will sail through the current regulatory uncertainties, experts still called for addressing the uncertainties as soon as possible.
Meng Ning, Neuberger Berman’s managing director and chief investment officer of China equities, said it is certain that overseas investors will stay bullish on the investment universe provided by China in the long term, given its strong global economic standing.
However, it should be “taken seriously” that global investors may shift their interest to other emerging markets if policy uncertainties persist in China, Meng said.
Yeung of FXTM said investors who are interested in growth opportunities provided by Chinese companies may turn to those listed on bourses in China in the coming months, in face of policy uncertainties surrounding overseas listings, or consider private equity and venture capital investments in China.