Chinese Government Intervention Shakes Tech Stocks:
Last week we saw the Chinese government decide to cut some of the country’s most successful businesses down to size. Of course, the Chinese Communist Party is always keen to make sure no person or company gets too powerful. But, this time, it has turned its attention to an entire sector! Chinese internet companies that had been a runaway success story to rival their western counterparts like Google, eBay and Facebook, now appear to have a smaller part to play in the nation’s development. While it’s not possible to know what’s on the mind of the political party, it seems a renewed focus on hard tech, manufacturing, and engineering rather than consumer services has something to do with it.
Elsewhere it appears the fight against the Delta variant of Covid-19 might be turning a corner. The number of new cases in the UK has started to fall. It comes (thankfully!) after rising exponentially for weeks! Meanwhile, vaccination rates in much of Europe have picked up significantly after a slow start. However, the UK’s decision not to vaccinate teenagers is currently limiting the number of people left to get a jab.
More Chinese Government Interference Causes A Sharp Fall In Shares:
Beijing’s crackdown on the education sector last week sparked a sell-off in Chinese stocks. The Chinese government’s new regulations are designed to ban companies that teach school curriculum subjects from making profits, raising capital, or listing on stock exchanges worldwide. The idea is to prevent them from accepting foreign investment. These policies follow recent Chinese government actions to control fast-growing tech giants and increased fears among global investors of further regulatory tightening in sectors other than technology and education.
Following the news, the Nasdaq Golden Dragon China index, which tracks Chinese technology stocks listed in New York, fell almost 22 per cent. That puts it on course for its biggest monthly fall since 2008. Shares in internet groups also dropped significantly. Tencent and Alibaba fell about 10 per cent and 7.7 per cent, respectively. Meanwhile, delivery platform Meituan dropped 17 per cent. The fall in Chinese stocks also has the potential drag on performance of emerging market funds this month.
Travel Stocks Benefit From Easing Of Travel Restrictions
The UK government has announced that vaccinated travellers from the US can now visit the UK without having to quarantine. So too can vaccinated travellers from most of the EU. The move is a boost for airlines as well as the beleaguered domestic tourism industry. The changes also see international cruises permitted for the first time since March 2020. Many areas of the economy have been able to return to pre-pandemic levels. But, so far, international travel remains far below the level seen in 2019.
The easing of restrictions will see many airlines finally able to increase their capacity. Last week Ryanair and IAG, owner of British Airways and Iberia, released their latest earnings results, and both expect to rapidly increase passenger numbers. Ryanair expects to be carrying 90m to 100m passengers this year, compared with 149m pre-Covid. IAG is expecting to fly 45 per cent of its usual schedule, up from 20 per cent in March. Travel and tourism stocks have lagged in recent months, but recent optimism has seen many stocks recover some of the lost ground.
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