In the summer of 2017, MSCI finally agreed to include China mainland stocks in its global benchmark equities indices. The decision means Chinese stocks will become a must-have part of many investor’s portfolios. Indeed, it’s a big opportunity for foreign investors, but the risk management is tricky in many regards. For one thing, speculative mom-pop retail investors have been dominating the Chinese stock market and for another, the state-owned firms have intervened in the trading market to a worrying degree. How will the market change and what can investors expect from this volatile yet promising market?
In China, while state-owned enterprises dominate the monopoly industries like petroleum and telecom, the country’s private economy is still the major source for growth in production, employment and exports. Private companies are very sensitive to market changes: When profit margins shrink, they will jump out quickly. Expectations are low while the Chinese economy is under the ‘New Normal’, but the government is still concerned about private investment stagnation. The top economic agency has created a work team to look into the problem and made 60 proposals to solve the slow-down issue. But will top-down methods work?
China’s industrial economy did not stabilize: it declined in the first quarter of 2016, according to the latest CKGSB survey of over 2,000 industrial firms nationwide. The survey, led by CKGSB Professor of Finance Gan Jie, shows that overcapacity and weak demand remain biggest challenges for China’s industrial economy. The Business Sentiment Index, a major indicator of the survey, stood at 46 in Q1 2016, a one point increase from Q4 2015, but still indicative of contraction. The BSI is the simple average of three diffusion indices including current operating conditions, expected change in operating conditions and investment timing.
China’s internet world is ruled by three big players: Baidu, Alibaba and Tencent, collectively known as BAT. The three companies generated revenues of $20 billion in 2013 and $8.16 billion in the third quarter of 2014. The big three account for a significant, and perhaps disproportionate, share of China’s internet market. Another technology company that has risen to prominence pretty quickly is Xiaomi. BAT and Xiaomi are quickly making inroads into new areas outside their core business—by either investing in or acquiring companies. Take a look at the brand and companies that are backed by these four companies.
Chinese companies are on an acquisition spree abroad. On paper, buying abroad may make sense, but from strategy to execution, a lot can go wrong. For every company that buys the right asset at the right time for the right price, handles the regulators of its industry in the right way and manages the integration with just the right touch, as many as four others flounder. Many studies have found that 50-80% of mergers fail to create any additional value, and that in fact a bad acquisition can cost the new company dearly. So how do Chinese companies fare and how can they do better?
Wang Jianlin’s sprawling business conglomerate, the Dalian Wanda Group, has its fingers in many pies: from real estate and retail to sports and entertainment.
The China-led Asian Infrastructure Investment Bank is poised to reshape development in Asia, and international finance.
CKGSB’s Business Sentiment Index shows that China’s industrial economy hasn’t improved over the last quarter. Rather it has contracted slightly.
China’s economic growth model has created a serious overcapacity problem that will continue to derail future growth unless tackled now.
Apple China is back in the reckoning; Walmart announces brave expansion plan and Alibaba gives the YunOS a renewed push.