Why investors should ignore ‘hysterical’ China regulatory fears
The fears of Chinese regulatory activity are ‘hysterical’ and could actually present a buying opportunity for investors seeking exposure to China.
Writing in its monthly update, both the Platinum Asia and Platinum International funds highlighted the regulation could not be compared to Western markets and was less problematic than people feared.
Among regulations proposed were limits to time teenagers could spend playing video games, tighter restrictions on its digital economy, scrutiny of private tutoring businesses, regulation of online insurance companies and anti-monopoly investigations.
Platinum Asia fund managers, Cameron Robertson and Andrew Clifford, said: “Recent coverage of policy reforms in China has bordered on hysterical at times. This is unhelpful for investors. China has a very different form of Government which many in the West see as ‘undemocratic’.
“We would gently remind those commentators that this is not unusual in Asia and not at all equivalent to poor social or economic outcomes – see for example Singapore, and to a lesser extent South Korea and Japan.
“One simply cannot expect the same regulation and culture of corporate governance to apply globally. China has a different system to the anglophone West – this should hardly be a shock to seasoned investors. Moreover, it is the second-largest equity market in the world and among its cheapest.”
The Platinum Asia fund had a 44.3% weighting to China including stocks such as Tencent and Alibaba, at 3.5% and 3.6% respectively, which were likely to be affected by the increased regulation.
“Regulations limiting property speculation, tech market abuses and time spent gaming are far from senseless nor incompatible with the functioning of markets, in our view,” Platinum said.
Meanwhile, the global Platinum International fund had 19.8% allocated to China including three of its top 10 largest holdings with its largest holding being ZTO Express Cayman at 3.1%.
It acknowledged it had experienced “near-term, mark-to-market losses on Chinese stocks” during August over the regulatory fears but said that it considered it to be a buying opportunity as it considered the regulation was “ongoing and considered”.
This was in contrary to Munro Partners and Magellan Financial Group who had both either exited or significantly reduced their Chinese holdings.
AUTHOR
Laura Dew
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