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Hong Kong’s Hang Seng index closes more than 4% down as China tech and education shares plunge

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  • beebee
    edited July 26
    EDUCATION BURDEN

    Goldman Sachs said in a research note its one year price targets on the listed tutoring stocks would be cut by 78% on average. The impact, the note said, would be mostly due to the ban on weekend and winter and summer holiday tutoring, which brought in up to 80% of the firms' revenue.

    China's for-profit education sector has been under scrutiny as part of Beijing's push to ease pressure on school children and reduce a cost burden on parents that has contributed to a drop in birth rates.

    More than 75% of students aged from around 6 to 18 in China attended after-school tutoring classes in 2016, according to the most recent figures from the Chinese Society of Education, and anecdotal evidence suggests that percentage has risen over recent years.

    "In the long run, it is definitely good news for the children as they don’t have to immerse themselves in endless homework," said Zhu Li, a Chinese parent in Haidian District in Beijing.

    "But on the other hand, it might not be so good if they fail to enter a good university."
    https://reuters.com/world/china/chinas-tal-education-expects-hit-new-private-tutoring-rules-2021-07-25/
  • It is mind boggling to see how the Chinese government interferes with the day-to-day operation of these companies. Having themselves listed in overseas stock exchanges have little or no value to the investors. Andrew Fosters of Seafarer funds discussed his discomfort with the Chinese government and his emergency market funds have few Chinese stocks.
  • It's not mind-boggling to me if you consider how the U.S. counterparts of these Chinese tech companies have interfered with out democracy and our economy. If China regulates tech too much, the U.S. regulates too little. There should be some happy medium.
  • @Sven - I've said it before about about the Chinese government exerting their influence on companies that they feel don't play by their unwritten rules. It's what keeps me from investing there at all even though the potential for rewards could be huge. To iffy for my tastes.
  • edited July 27
    @Mark, For the better or worse, the Chinese stocks have evolved since they started listing outside of China stock exchanges. Andrew Foster of Seafarer funds has written extensively on this topic. As such I use Seafarer in order to gain exposure in this asset class.
  • While Seafarer has less China exposure than their previous shop, Mathews ( SFGIX 14% per M* vs say MAPIX 22%) SFGIX still lost 4% in the last month vs MAPIX 6%

    Mathews has a webcast on the recent turmoil this afternoon ( I wish they would just send out a transcript.... so much more efficient)

    https://info.matthewsasia.com/chinas-regulation-update-with-andy-rothman-registration-page.html

    Nothing recent from Seafarer
  • edited July 28
    A number of Matthew funds are even more focus on China than Seafarer and thus they have larger loss in recent weeks.

    Older webcasts on Seafarer website are worthwhile to review for better understanding on the changes over the past decade.

    The emerging market indeces, EEM and VWO have 40% exposure to China, which is the largest component. This also spilled over to the smaller EM stocks as well.
  • Listened to most of the webcast.

    Matthews thinks the dramatic drops were over reactions, caused in large part by the Chinese fumbling the announcement and rollout of the regs. It also occurred at the end of the month and many investors in China needed to raise cash.

    Mattthews folks saw some of this coming, but said that the business models of the worst hit firms ( education sector) were not good and they were not invested in any of the worst hit names.

    They specifically do not see these regs as "anti-foreign investor" and the Chinese government trotted out one of their heavy hitters to say that specifically Monday night after they were surprised by the reaction

    They think a lot of the downside is over.

    I was impressed by their knowledge of Chinese politics and economics

  • sma3 said:

    Listened to most of the webcast.

    Matthews thinks the dramatic drops were over reactions, caused in large part by the Chinese fumbling the announcement and rollout of the regs. It also occurred at the end of the month and many investors in China needed to raise cash.

    Mattthews folks saw some of this coming, but said that the business models of the worst hit firms ( education sector) were not good and they were not invested in any of the worst hit names.

    They specifically do not see these regs as "anti-foreign investor" and the Chinese government trotted out one of their heavy hitters to say that specifically Monday night after they were surprised by the reaction

    They think a lot of the downside is over.

    I was impressed by their knowledge of Chinese politics and economics

    Andy Rothman at Matthews is a long-time macro-china bull. I get that he works at an asia focused company, but I can't ever remember a time that he's been even remotely negative on China. He was the same when he was at CSLA. He's also strictly a macro guy - he does not look at individual companies or even sectors. He is a good story teller, but don't expect him to ever connect his story to individual companies.

    As for them thinking the worst is over, i'm not shocked. But remember...Matthews business is investing in Asia and specifically China...so of course they will be optimistic, for their own survival of nothing else. I don't think other investment firms have the same sentiment.

    I used to like the Matthews investment guys but the personnel turmoil there with the global CIO coming on, then leaving within 6 months and the mass exodus of portfolio managers has me questioning how good the remaining guys are. Andrew mattock who manages the matthews china fund has a decent track record but is a benchmark hugger, active share is less than 60%. The entire China small cap team led by Tiffany Hsiao left to Artisan Partners, and no surprise the performance for that fund nosedived after they departed. Keep that in mind as you talk to the folks there.
  • edited August 13
    I taken that you don't invest with Matthews Asia funds or have high opinon of their outlook? Though I agree that Matthews Asia funds have not excel with the exiting of several experienced managers.
  • Sven said:

    I taken that you don't invest with Matthews Asia funds or have high opinon of their outlook? Though I agree that Matthews Asia funds have not excel with the exiting of several experienced managers.

    Yes, quite--- re: Matthews. I was going to create a separate thread about this. The Matthews funds I track are MAPIX and MAINX. (The latter will finally be 10 yrears old at the start of Nov, 2021, if I'm not mistaken.) Seems that for a few years, at least, they have just sucked, performance-wise.
  • Ok, after looking again just now: MAPIX has been running hot and cold.
    https://www.morningstar.com/funds/xnas/mapix/quote
  • That is the risk of being concentrated in one region, Asia. Yes, many have said that is where the growth will be. The counter argument is at what cost, especially geopolitical.
  • edited August 15
    Sven said:

    I taken that you don't invest with Matthews Asia funds or have high opinon of their outlook? Though I agree that Matthews Asia funds have not excel with the exiting of several experienced managers.

    I used to, but not anymore. I was pretty enthusiastic about them 10 years ago after I met with one of the founders. I found their approach to investing and vibrant team pretty compelling and unique. However, performance started becoming mediocre around 2015 and their fees are high, then portfolio managers started leaving, and not to retire, but to other competitor firms. I can't list all the names, but i recall at least 10 relatively young portfolio managers leaving the firm in the past two years, which is meaningful given the size of Matthews. Something seems off with the team and overall company. Not something we haven't seen happen at other boutiques. Its tough to stay hungry and not slip into complacency and mediocrity. The recent departures, who again are all relatively young, tell me people are jumping ship and there are bigger issues at play than just poor performance.

    Its been interesting to see where Matthews PMs have left to. I've been trying to find a way to get into Tiffany Hsio's China private/public fund at Artisan (I loved her China Small fund at Matthews). Others left for Genesis (UK) and Rondure in SLC IIRC.
  • Tiffany Hsio's Artisan fund is opened right now but I am not ready to get in given the political climate with China right now.
  • Sven said:

    Tiffany Hsio's Artisan fund is opened right now but I am not ready to get in given the political climate with China right now.

    Yes, though I'm guessing the invsetment minimum is quite high. While I share your same concerns, within China, who knows which industry will be targeted by their own government next! So with all that said, not sure i'm ready to allocate such a big chunk, though I do love Tiffany as an investor.
  • More from Andy Rothman in today's WSJ. Unsprisingly, Andy's pro-China stance is evident once again!

    https://www.wsj.com/articles/u-s-economy-likely-to-outgrow-chinas-due-to-contrast-in-pandemic-responses-11629036000

    Andy Rothman, a China specialist at Matthews Asia, views the growth reversal as a blip along a road leading to China eventually becoming the world’s largest economy. The recent U.S. results are “like getting so excited about the Washington Nationals winning five in a row but they’re still five games below .500,” he said.
  • Strongly considering throwing a few dollars into Fido's 5 star China Fund - FHKCX.

    Don't really want to buy education stocks (TAL, EDU, etc), but at current prices.....tempting. The Chinese gubmint is even more devious than our gubmint - they turned 800 lb gorilla BABA into a 400 lb. gorilla.

    And at least it will never be boring.
  • JD_co said:

    Strongly considering throwing a few dollars into Fido's 5 star China Fund - FHKCX.

    Don't really want to buy education stocks (TAL, EDU, etc), but at current prices.....tempting. The Chinese gubmint is even more devious than our gubmint - they turned 800 lb gorilla BABA into a 400 lb. gorilla.

    And at least it will never be boring.

    That's for sure. Maybe you'll have to go over there to do your own due diligence...
  • So with all that said, not sure i'm ready to allocate such a big chunk, though I do love Tiffany as an investor.
    Not in a hurry from this end either. The situation continues to evolve. Will see how Ms. Hsio's fund perform in the near term.
  • At least with FHKCX , you can sell it without incurring early redemption transaction fees(amounts under 10k). I just invested $100 in my Roth IRA .
  • edited August 16
    So, BABA's Jack Ma really dropped off the face of the earth after being summoned to Beijing last October (after his political speech)? Poof - gone.

    Supposedly, he uhhh....paints a lot now. Somewhere, location unknown. China is scary in many ways.
  • beebee
    edited August 17
    Recent Comment:
    SEC Chairman Gary Gensler issued his most direct warning yet about investing in Chinese companies, reiterating a call for more disclosures of risks. "When American investors think we're investing in a Chinese company, it's much more likely that we're actually investing in a company in the Cayman Islands," he said in a video message. "In certain sectors like technology and the internet, the government of China actually doesn't allow ownership and investment from people outside of China. To get around this, China-based operating companies establish contracts with shell companies in other countries."

    Gensler is asking SEC staff to take "a pause, for now" in approving IPOs of shell companies that Chinese firms use to list shares in the U.S. He also wants investors to have more information about how those firms are structured and what money is flowing between the Cayman Islands and China. "That means disclosing the political and regulatory risk that the government of China could, as they've done a number of times recently, significantly change the rules in the middle of the game."
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