After flushing out bears in late May 2023, China markets roared higher. The politburo indicated in its key meeting last week that it would loosen its regulatory crackdown on the technology industry. Markets are pricing over two years.
Alibaba’s (BABA) canceled IPO of Ant Group for $37 billion in Nov. 2022 marked the start of that crackdown.
For the YTD, the China Internet ETF (KWEB) is up 5.1%, compared to the -4.42% YTD return from the 2X Bull ETF, CWEB.
Investors should watch Nio (NIO), an EV maker, JD.com (JD), a retailer, and Tencent (TCEHY), a gaming firm, closely. Their core businesses would thrive once the CCP shifts away from its punitive regulations.
It has to.
When China unexplainably ended its three-year Covid lockdown, the government expected the economy to bounce back. However, small businesses shut down, consumers saved instead of spent, and Western firms diversified to ASEAN locations.
Chances are high that the CCP will ease further. It will keep cutting interest rates to lower borrowing costs. This will slow the housing price decline in the estimated 15%-40% range.
The government may also increase infrastructure spending to create economic activity. That is inflationary for the world but stabilizing for the Chinese economy.