Chinese stocks have really had a disastrous year. The value of the country’s biggest companies, such as Alibaba and Tencent, have been reduced by billions of dollars, and businesses have reported their lowest annual growth rates on record.
Most of the difficulty can be attributed to the government’s lengthy COVID-zero policy, which locked down the economy for months on end. Now that the country is beginning to reopen and re-examine the way it handles Covid, opportunities are beginning to arise to acquire some of these Chinese company’s stocks at a discount.
With the backing of a trusted and regulated broker such as easyMarkets, the options are endless with the financial products and tools provided to take advantage of the Chinese recovery.
Major headwinds in 2022
It hasn’t just been Covid policy holding back the bigger Chinese companies since the pandemic, especially in big tech. New antitrust guidelines, data protection legislation, and a groundbreaking law regulating the use of algorithms by internet firms have also been implemented during the last two years, and they were a big shock for some investors.
As Beijing tried to rein in the dominance of its internet giants, which had, until recently, expanded virtually unrestrained, companies like Alibaba that had violated antitrust regulations were penalized with hefty fines.
Big hitters in the gaming industry have also taken a significant blow over the last couple of years. Regulators halted approvals for the publication of new video games in 2021 and implemented guidelines that limited the amount of time that children under the age of 18 may spend playing online.
A long recovery from the COVID-zero policy?
Even as China prepares for the human impact of letting the virus spread in the community unchecked, some economists are concerned by Beijing’s unexpected withdrawal of the zero-Covid policies. Last month’s statewide protests against the restrictions appear to have prompted the leadership’s abrupt pandemic management U-turn.
Beijing may be mistaken if it believes relaxing its tough Covid policies and testing procedures would quickly boost the economy. The policy move will likely provide a growth dividend, but the world’s second-largest economy is expected to worsen before improving, and it’s thought the lifting of limitations won’t pay off until at least mid-2023.
New US auditing a plus for investors
The Chinese government in the last few months began allowing American authorities to access Chinese audits of Hong Kong and mainland China-based companies. A policy issued in the last days of the Trump administration threatened to delist Chinese enterprises who refused to share their data with foreign auditors for three years. Based on its own rules, Beijing in the past had refused to share audit data with non-Chinese firms.
Some 260 Chinese stocks are traded on US exchanges, including Pinduoduo, Yum China Holdings and Alibaba Group Holding. The never before seen access will undoubtedly provide some added confidence to investors, but some involved in the audits warn that it doesn’t necessarily indicate companies have a “clean bill of health.”