There is much to cause concern regarding the Chinese economy. Yet, why are American investment entities so bullish about its markets?
The news coming out of China points to deep-rooted economic troubles, and Beijing’s new regulations make for an uncertain business environment. Yet, Wall Street is bullish on Chinese stocks! For those who have been watching the world market news, this is something of a paradox. Here is what we do know: The „world’s factory“ is slowing down. Its shoddy foundations can no longer sustain the growth it put forth at the turn of the millennium. The factors mentioned above would dissuade any investor from entering the Chinese markets or, at least, be wary of its volatility. The nearly 16% drop in MSCI China Index is a clear indicator of the inherent weakness in the economy. Yet, Wall Street is pushing Chinese stocks and bonds with great enthusiasm. JP Morgan and Goldman Sachs urge investors to increase their exposure to Chinese stocks and bonds, stating that they should be better represented in global portfolios. Beijing’s hand is overtly visible in the enthusiasm and confidence among the world’s top investment entities. In late July, the deputy chairman of China’s securities regulator met with executives of BlackRock, Goldman Sachs, and other firms at the height of a market sell-off. The agenda was to reassure these influential moneymen that Beijing’s regulations would spare their investments. Since then, New York-based BlackRock has announced that it had raised US$1 billion with its first mutual fund in China at the beginning of September. Considered the world’s biggest asset manager, it „is the first foreign company to be allowed to solely market its own mutual funds in China following a change in rules by Chinese regulators and is expected to be joined by other foreign competitors soon.“ Before the pandemic, it was estimated that top US banks had a combined $70.8 billion of exposure to China. Despite political tension between the governments, financial investors are eagerly looking forward to the opening of China’s $45 trillion financial markets. Even with the high risk, due to the size of the market and potentially lucrative deals, no large or mid-cap investor wants to upset Beijing. The nexus between the Chinese authorities and American bankers is nothing news. Back in 2016, JP Morgan was fined $264 million by American regulators for hiring children of Chinese officials to secure Asia-Pacific business. The numbers do not inspire confidence. China’s overall debt was 270.1 percent of GDP at the end of 2020, and outstanding foreign debt was US$2.4 trillion. Many of Beijing’s policies are skewed towards debt reduction and better business practices.
