The second half of March brought the observable dip in Chinese equities markets. Shanghai and Hong Kong started dropping drastically, and so did Shenzhen (although not so badly)
Experts from the investment banks looked at the Chinese stocks with some sort of optimism, especially in the closing months of 2020. But today the things have changed. Some Chinese media interprets that as a result of the adoption of new rules in the United States, which now require Chinese (and other foreign) companies to submit audits on their finances. If they don’t, they will be ejected from Wall Street.
The Chinese and other foreign companies knew that eventually, they will have to adapt to some standards to remain on the exchanges in the United States. Joe Biden’s administration has actually had this general tone for a while, so the Chinese reaction can be a little surprising.
Did you hear the Luckin’ Coffee story, that happened in June 2020? A coffee shop chain from China was caught with suspiciously looking account books – and later admitted that this was indeed the case. A story like that clearly influences the analysts’ approach to the Chinese market.
Hong Kong has delayed the introduction of the Covid-19 vaccine to their market, and a lot of China-based companies (Like Kuaishou Technology and Geely Automobile) delivered disappointing earnings reports in 2020. If you add all that up, the overall outlook of China and Hong Kong stock markets doesn’t look too good (to the point where some could be starting to worry).
What has changed for China lately?
As the Covid-19 exit is the priority for most of the world, there is still a lot of critical statements regarding the nontransparent pandemic outbreak in China. But there is also no doubt that they played an important part in the efforts to keep the virus under relative control. This looks like they entered it first, and could potentially be the first ones to get out of it.
The past year has been full of changes. In April 2020 we could see Donald Trump (back then still as the President of the U.S.) talking about how he started to understand China. Fast forward a year – there is a new President, who alongside Canada, the United Kingdom, and the European Union has sanctioned China for alleged abuses of human rights towards Uighurs. Things have gone drastically south.
All that aside, it will be a rather interesting thing to watch, how and if their economy recovers. China doesn’t seem to have so much debt when we compare them to the countries that sanctioned them.
But 2020 still wasn’t good for China in terms of the debt ratio. Although, they are expecting their GDP (gross domestic product) to debt ratio to remain “generally stable”. There is actually a rather ambitious target of growing their economy by more than 6% in 2021, and (according to some observers) it could be as much as 8%.
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And the Israel?
At the beginning of the year, things were looking pretty optimistic for Israel. But they have been pushed into the shadow by the Chinese recovery. It could actually mean that other economies (Israel included) could be very soon following the steps of China.
The United Kingdom and Israel are currently leaders in the vaccine rollout, as they both were able to open up their economies and lift some restrictions. For a lot of countries, this could be the projection of what awaits them when they will have completed (at least partly) their vaccination programs.
Israel is really close to fully emerging from the pandemic. But the Central Bank of Israel has been quiet recently, as to how the recovery is going. The Bank of England was a bit more active when it comes to that.
The recovery in the United Kingdom
Andy Haldane, the BoE’s (Bank of England) Chief Economist recently gave a television interview, where he said that as the recession we witnessed was the sharpest in history, the recovery will be equally rapid.
To find out more about China’s, Israel’s, and England’s prospects, read the full Disruption Banking piece by Andy Samu: https://disruptionbanking.com/2021/03/25/stock-markets-in-china-look-bearish-should-you-worry/.