While investor sentiment on China has been bearish for months due to the country’s crackdown on tech firms, President Xi Jinping’s focus on “common prosperity,” stringent COVID lockdowns, and increased tensions over Taiwan, there have been signs for optimism.
For one thing, Alibaba Group Holding Ltd.’s and Baidu Inc.’s better-than-expected earnings recently triggered a rally in Chinese technology stocks. Also, authorities in China are easing COVID restrictions as cases decline. Plus, China’s National Press and Publication Administration recently approved 60 new games this year after a months-long freeze, up from 45 in April.
But those aren’t the only reasons to suggest that China is due for a comeback. Another silver lining is that China appears to be moving on from “common prosperity.” Over the past year, Xi’s common prosperity slogan has been removed from his speeches. While a new campaign is typically accompanied by a raft of policies, common prosperity seems to have been a buzzword with relatively few accompanying measures.
China is also attempting to support equities. Alibaba’s recent announcement that it would proceed with the biggest share buyback in Chinese corporate history suggests that China has ended its crackdown on its biggest tech companies and wants to put a floor under equity prices.
“Top-level rhetoric seems to be softening on internet companies, a boon for the embattled sector and Chinese equities in general,” wrote Louis-Vincent Gave, chief economist and partner for registered investment advisor Evergreen Gavekal.
Gave also points out that Chinese easing has kicked into higher gear, as policymakers are looking to get China’s economy back on its feet. Current easing measures may be the government battling a greater-than-expected economic slowdown, or it could be an attempt to kickstart a “feel-good” atmosphere before the Party congress. Whatever the reason, China’s fiscal and monetary policies could be a potential tailwind for markets.
“Sentiment around China has been negative for so long that severe pessimism has set in. But the reality is that we are starting to see real green shoots and catalysts emerge,” said Kevin T. Carter, founder and CIO of EMQQ Global. “Covid lockdowns are loosening. There are signs that the crackdown in the tech space is decelerating. Valuations are very low, and expectations are even lower. Companies in the space are buying back their own stocks at record levels.”
More than half of the assets in EMQQ Global’s Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ) are weighted toward China. By focusing on the internet and e-commerce in emerging markets, EMQQ looks to capture the growth and innovation happening in some of the largest and fastest-growing populations in the world.
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