Return of Industry and Loosening of Tech Restrictions Paves the Way for Chinese Stock Recovery

While the past year has been extremely challenging for the Chinese economy, a more optimistic outlook appears to be returning as government data showed factory activity across the country grew in June. Coupled with easing regulations around tech stocks, China has managed to outperform other markets in staging a recovery.

Following news that factory activity had been growing, on June 30 the Shenzhen Component rose more than 2 percent initiallybefore settling around the 1.57 percent mark to close at 12,896.2, while the Shenzhen Composite rose 1.1 percent to 3,398.62.

The market moves come from a relatively prosperous period as China’s strict zero COVID policy, whereby regions can be locked down in the wake of small outbreaks of COVID-19 cases, was eased for industries to reopen and will be reinforced. productivity.

Although markets have welcomed the return of the industry, investors may be wary after news that the Chinese Communist Party may seek to maintain tough measures in place for the next five years – meaning that any additional outbreak of cases could have a huge impact on the economy.

As the data sampleChina’s local stocks have enjoyed a relatively buoyant month compared to US stocks in recent months. Significantly, we can see that the Shanghai Shenzhen CSI 300 index remained strong in June following the easing of lockdown measures, while the S&P 500 index tumbled.

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While Chinese stocks surged to their highest levels in three months, US stocks struggled to accept a 75 basis point rate hike imposed by the Federal Reserve in mid-June.

Despite the strong recovery, the situation in China remains volatile. Recent data has suggested that COVID-19 rates in China may be rising again, while investor concerns around the prospect of a recession have shown in volatile oil prices. As the financial recession continues gain a foothold in AsiaTraders have started betting on a drop in oil demand.

“There is very clear evidence that economic stress is caused by high prices, which some people call demand destruction.” said mike muller, head of Asian crude trading firm Vitol. It is “not just oil, but also liquefied natural gas,” he added.

One of the biggest impacts of China’s ongoing stock market woes has been a reappraisal of the country’s approach to its tech sector.

Following a series of meetings in late May, China’s economic officials signaled that the worst of its crackdown on tech stocks may be in the past. The measure offers the prospect of a recovery for the first time since late 2020when many of the major national tech companies such as Alibaba, Tencent, Didi and Meituan were affected by the harsh application of government regulations.

The Chinese government is now expected to opt to ease the crackdown as a stimulus measure to counter the significant economic challenges the country has faced over the past two years, as well as the closure of many industries in the wake of the recent COVID-19 pandemic. . 19 buds.

News of the easing of restrictions saw an influx of trading volume as investors found the prospect of a rally too tempting to ignore. Furthermore, policymakers in Beijing were shown to be making good on their first-quarter 2022 promises to support the economy and prevent a continued slump that had been threatened by housing market woes and tech firm restrictions.

“I think we’re bottoming out here,” Chi Lo, senior Asia Pacific investment strategist at BNP Paribas Asset Management, told Bloomberg. “When you look at the biggest drag on Chinese stocks, which was regulatory tightening in the tech sector, the worst is over.”

Significantly, the resurgence of Chinese tech stocks coupled with the relaxation of regulatory restrictions may pave the way for an Ant Group listing that could have the potential to boost China stocks both domestically and internationally.

When Ant Group initially sought to list in November 2020, the company would have held the world record for the largest initial public offering in history. At the time, the financial services giant expected to generate $37 billion, leveraging a value of around $315 billion.

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While times have changed since the end of 2020, the prospect of a major listing is much needed for Chinese tech stocks.

Amid rumors that regulatory easing could pave the way for a listing of Ant, Alibaba shares listed in the US, which are more accessible to Western countries alike stock trading platforms, experienced sharp price changes in recent months. Despite investors anticipating a major listing, China’s regulator has yet to declare that talks are underway to revive the transaction.

Although there are many obstacles that may still present themselves in the coming months. China’s return to the industry and regulatory easing have paved the way for a considerably more optimistic outlook for the Shenzhen Stock Exchange. If COVID-19 cases remain low, we may see Chinese stocks recover at a faster pace than many other markets around the world.

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