CNBC's The China Connection newsletter: AI wins come with an old investor risk
From a surprise yuan devaluation in 2015 to crackdowns in recent years, many of Beijing's policy moves appear abrupt to outsiders.
In this latest edition of The China Connection, Evelyn explores the tech advancements in China and their impact on foreign investors. Beijing's recent actions reveal why foreign investors remain cautious, citing policy communication as a key concern. The probe into Fang Xinghai, a former vice chair of China's securities regulator, highlights this issue.
Despite his success in algorithm-driven quantitative trading, which has drawn regulatory ire, details of the probe were sparse. This lack of communication has led to increased market volatility and investor uncertainty. China's stock markets are relatively new, lacking transparency compared to established markets like Europe and Japan.
The sudden devaluation of the yuan in 2015 and recent crackdowns on various practices have contributed to this perception of abrupt policy moves. This volatility isn't solely due to quantitative trading but is also attributed to unexpected policy disclosures. Examples include Trip.com's sharp decline following an investigation into alleged monopolistic practices and Futu's significant drop after China renewed its crackdown on cross-border stock trading.
The delisting of Didi following a cybersecurity probe and app suspension in China further illustrates the impact of such regulatory actions. Despite occasional positive headlines, such as the DeepSeek R1 release and Kimi K3 model launch, Chinese stocks have yet to outperform U.S. stocks and bonds, making them less attractive to capital.
BlackRock's neutral stance on Chinese stocks and the surge in alternative chip plays like CXMT, a state-backed memory chip company, illustrate the limited opportunities for foreign investors. MSCI's inclusion of CXMT in the MSCI China All Shares Index in August aims to provide exposure to these opportunities. However, the path to attracting significant foreign investment remains challenging due to Beijing's focus on finance and the need for better communication and trust.
Written by urgent.news from CNBC's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
