In the old days, it was often said that the key to career success for officials is knowing what’s on the king’s mind.
Investors have been applying that thinking to investing in Chinese firms. It did work in previous years but the situation has become far more complex these days, rendering this approach a lot more erratic.
For instance, a few years ago, if investors heeded Beijing’s policy direction and invested in sectors like autos and home appliances that the government was keen to promote, making money was easy.
More recently, there have been more rapid policy twists and turns.
If investors sold properties based on Beijing’s pledge to rein in real estate prices a couple of years ago, they would have found themselves seriously wrong-footed as the government suddenly reversed its tough stance and pumped substantial liquidity into the market after the A-share stock slump in mid-2015. Property prices never looked back since then.
China has been pushing for a wider adoption of clean energy and natural gas is supposed to be a winning sector.
Ironically, when global oil prices slumped, in order to keep the oil-producing state-owned firms afloat, Beijing only allowed the gas price to come down slowly, hitting gas distributors as their customers found natural gas too costly.
Banking, property, infrastructure and gaming stocks are all highly sensitive to policy changes, and I would advise investors to stay away.
By contrast, tech companies thrive on solid market demand for their products and services, some of which like online video and digital payment have already or will soon become part of daily life. The fortunes of tech plays are thus less likely to reverse suddenly.
This article appeared in the Hong Kong Economic Journal on Jan. 11
Translation by Julie Zhu
[Chinese version 中文版]
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