The stock market can be heavily influenced by geopolitical events and government policies, and Chinese businesses are no exception. In fact, recent movements from China’s government have made a huge impact on global businesses, and several stocks have fallen as a result. Most notably, Chinese companies listed in the US stock exchange have experienced the biggest decline in value since the financial crisis of 2008.
With a focus mainly on online entertainment, tech and education, let’s explore further how stocks in Asia are continuing on this downward trajectory.
To some market investors, the tightening of restrictions by the Chinese government appears to be an attempt to limit business expansion in certain industries. It has also been argued that it is part of their ambition to regain control over the highest levels of the economy – which is dominated by the digital industry.
Another aspect is the commentary on whether China deem certain parts of the tech industry as dispensable, such as online gaming and social media. Instead, they want to strategically encourage more high-tech manufacturing in line with their policies, to promote economic growth in another direction.
The restrictions themselves include a multitude of policies and regulations that companies have to adhere to, as well as considerable fines for some top businesses. The main elements of the crackdown from the Chinese government have been investigations into the data security practices. This has forced private tutoring companies to turn into non-profits and has banned them from raising funds on global stock markets; and implementing policies in relation to employees’ wages.
From the point of view of the Chinese government, these new regulations and reprimands involve a drive to regulate the power of giants in the tech world, ensuring that private business contributes to the development goals of the nation. It also aims to increase data security, and deal with inequality.
The effects on the financial markets
At the beginning of the month of September, it was reported that The China A50 (CN) index – which tracks the performance of the top 50 company stocks listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange – was down more than 0.17%.
The value of stocks has continued to decline as the government’s reprimands remain firmly in the spotlight. For investors looking at both stock and forex, on a platform like Plus500 forex trading for example, they may be concerned about the impact on the Chinese economy and the risk it poses for a slow recovery. As the world’s largest economy, this could have a significant effect on the rest of the world.
Which stocks have been affected?
There have been some companies in particular that have seen the result of government interventions impact the value of their stock. Let’s look at these further:
- Tencent (0700.HK)
A company listed on the Hong Kong exchange, Tencent has experience a decline in value following the news of the country’s new policies. The company is based in Shenzhen, China and offer online music entertainment. It has been affected by the government’s instructions to internet companies, forcing the removal of each other’s links appearing on their sites. There were even threats of penalties if these internet companies, like Tencent, do not follow this requirement.
- Meituan (3690.HK)
Another tech firm, Meituan offers a multitude of services, including online food delivery, entertainment, dining, and travel. Their stock value also witnessed a significant decline in response to the same government requirements, emphasised further by the business’ report of losses for the third consecutive time. Meituan is also facing issues with regards to loan repayments, and their credit rating has received negative feedback from credit rating agency, Fitch Ratings.
- Didi (NYSE: DIDI)
Located in Beijing, Didi is a Chinese vehicle for hire company, making its debut on the New York Stock Exchange at the beginning of 2021. However, its stock witnessed a slump due to the involvement of the Chinese government. The country’s regulator launched an investigation into the way in which the company collected user data, and potentially could enforce some serious penalties.
As the Chinese government impose more rules and regulations, the stock market is set to witness volatility. With any investment, you should always conduct extensive research into the market and the factors that will affect the company’s stock.