Buying into China?
By Tavish McNulty | October 21, 2021
Over the course of the last few months, China has raised major concerns for US investors. As the country drifts back to its Communist roots, it has begun to harm its own private sector. In addition to this internal dilemma, tensions between the United States and China have been steadily heating up. Due to a combination of these issues, many of the Chinese securities listed on the US stock exchanges have drastically decreased in value. By analyzing China’s current position, this article hopes to give the reader the necessary information to make educated decisions about investing in Chinese securities.
In its efforts to adopt a more communist agenda, the Chinese Government has begun to take a strict stance against the country’s private sector. The Government has refused to bail out corporations that rely on them, resulting in the bankruptcy of Chinese companies. In addition to cutting funding, the Government has passed legislation that placed harsh regulations on the private sector. The cultivation of these problems has led to the fear that the Chinese Government will eliminate its private sector altogether!
The recent tension between the United States and China has created an economically fought war. Both countries have spent massive sums of money in order to place large tariffs and other forms of economic sanctions on each other in the hopes of weakening the other side. This type of warfare creates battles of attrition, stalemates on a global scale. These stalemates result in a decrease in trade worldwide, harming the economies of all nations involved. In addition to this, investors are also concerned that this tension will lead to the delisting (removal) of all Chinese companies on US-Stock exchanges. By making the trade of Chinese stocks illegal, American investors would be forced to sell their positions at a lower level, resulting in a net loss.
The combination of these domestic and foreign factors has significantly lowered the prices of Chinese securities in the short run. However, investors look to see what the long-term implications of these events will be. If China were to return to the “status quo” (a situation similar to before these events took place), we would see a resurgence of the price of these securities, netting investors who buy at today’s lower price levels a fortune. However, if China is to remain on its current course, we would likely see that the private sector will be all but non-existent over the course of the next few years, resulting in the loss of billions of dollars of US-invested money. With all this information in mind, remember that fortune favors the bold but not the foolish.
Edited by Joseph Barbieri