The Chinese Regulatory Intervention: Should you be Worried?
The news seems to be ever increasingly unsettling these days, doesn’t it! Undoubtedly some will say the news has always been bleak – the coverage is just greater. But it certainly feels like one thing after another. And, now we also have concerns about Chinese regulatory intervention to throw into the mix.
In case you’ve missed any of the furore, in June, China’s ride-hailing app Didi (think Uber!) floated on the US stock exchange. The company ended its first day with a massive valuation of $68.5bn (£49.6bn) – the biggest flotation by a Chinese company in the US since Alibaba.
As the old warning has it, though, stocks can down as well as up – a feat which Didi swiftly proved. Less than a week after its apparently successful flotation, Didi was being sued by US shareholders after a crackdown by regulators in Beijing triggered a sharp fall in the company’s share price.
Where did it all go wrong?
Didi’s share price plummeted 20% after the regulators told online stores to remove the ride-hailing app. It alleged that the company had illegally collected users’ personal data. It went on to accuse the company of failing to disclose the ongoing talks it was having with the authorities regarding its compliance with cybersecurity laws and regulations.
In many ways, the main story here lies outside of Didi itself. What is important is the attitude of the Chinese authorities and the fact that the action they took directly caused investors in the US to lose money.
A similar story can be told about Bitcoin, the most famous of the cryptocurrencies. Back in April, Bitcoin reached an all-time high of £47,640. But, since then, it has lost more than 50% of its value. In fact, at the time of writing, it now stands at £21,810.
A significant contributory factor in this was, yet again, the Chinese authorities. This time, the Chinese Central Bank ordered banks and payment platforms to stop supporting digital currency transactions and said that it would take a much tougher line in the future.
Action has also been taken against individuals. We mentioned Alibaba above. In November last year, Alibaba co-founder and former executive chairman Jack Ma suddenly disappeared for three months after making a controversial speech that fell foul of the authorities. He duly re-emerged but, again at the time of writing, is “lying low” again, having upset the regulators further.
What does it mean for the imminent future of investments?
Chinese regulatory intervention seems to be ever-increasing. So, as investment by Chinese companies grows around the world, it’s unsurprising that one simple question will be in every investor’s mind. Could this sort of action affect my savings and investments?
In theory, the equally simple answer is yes. Profit and loss forecasts, earnings and dividends are one thing. Seemingly arbitrary action by regulators sitting in an office 5,000 miles away is quite another. However, fear not. The thing to remember is that the action does not affect anyone’s entire portfolio. A diversified portfolio (one that is not over-reliant on one geographical market and certainly never on one particular company) can help avoid the worst of it.
By maintaining consistent contact with our clients, we are always available to answer questions. The world continues to change, as indeed, it always will. Twenty years ago, owning shares in a Chinese taxi company was the stuff of fantasy. But rest assured, we are always up to date with any changes and will always act accordingly, and always with your very best interests at heart.
If you have any concerns about your investments, remember we are only a phone call away!
Written by Ian Barnett
Ian is an experienced Chartered Financial Planner as well as being a Fellow of the Personal Finance Society, with over 25 years’ experience in the financial services industry. With a broad range of client experience and expertise, Ian specialises in financial matters from Pre-Retirement Planning to Inheritance Tax Planning and all points in between.