As it turned out, Chinese state media were correct to predict equities would rebound “quickly” following this week’s egregious rout catalyzed by the escalation of Beijing’s regulatory blitz.
Shares surged Thursday both on the mainland and in Hong Kong, in keeping with Securities Daily’s contention that stocks would “gradually regain lost ground on Wednesday or some time afterward.”
Who knows whether the vaunted “National Team” was at work, but the PBoC did add liquidity, pushing O/N rates down the most in a month and helping Chinese bond yields fall for the first time in three sessions. Reports that Beijing isn’t instituting a total ban on US IPOs appeared to bolster sentiment as did the CSRC’s conference call with bank executives.
Read more: ‘Hi, It’s China. We Understand You’re Terrified.’
“China will continue to allow Chinese companies to go public in the US as long as they meet listing requirements,” CNBC reported, citing a source familiar with discussions between the securities regulator and brokerages. The person also said cross-border listings via variable interest entity structures are still allowed. “The regulator recognized the structure is a vital way for companies to attract foreign capital, but said it would have to be adjusted if there were national security concerns,” the same linked article read.
That news came two weeks after Beijing set up a veto mechanism for overseas listings citing national security and data concerns.
The CSI 300, which was on the brink of a bear market, rose nearly 2%, while the ChiNext (a better gauge of speculative sentiment) jumped more than 5% (figure below).
Obviously, not everyone is convinced the worst is over, but at the least, Beijing appears keen to ease its foot off various necks for a spell.
During Wednesday’s call with bank executives, Chinese regulators emphasized the “targeted” nature of the education technology crackdown, but as JonesTrading’s Mike O’Rourke dryly noted, “before the market goes into full V-bottom mania, investors should recall that Ant Group, Tencent, Didi, etc. were all ‘targeted actions’.”
Speaking of “V-bottom manias,” the rebound was more dramatic in Hong Kong, commensurate with the scope of the selloff in city shares. The Hang Seng Tech Index, the poster child for pain, jumped 8% (figure below).
There were the usual perfunctory quotables Thursday, as market participants implicitly pretended to have some claim on knowing what the Party may do next.
Bloomberg quoted someone from Gavekal Research, who said “the campaign to comprehensively regulate internet platforms [won’t] be abandoned as it remains a high-level political priority [but] the regulatory storm can shrink to a more manageable size which, given the beaten-down valuations of Chinese tech firms, should create plenty of buying opportunities.” I appreciate the effort, but that’s just pure speculation. “Could,” “might,” “should.” Nobody knows. Except Xi.
The article from which that short quote is excerpted carried the following headline: “China Stock Rebound Leaves Market Divided on Limits to Crackdown.” As discussed here Wednesday, the only natural “limit” on the Party’s willingness to institute draconian measures in the pursuit of what it views as societal imperatives is social unrest. To that point, the latest selloff certainly didn’t feel like the 2015 collapse, during which scores of retail investors and newly-minted day-traders (many of whom didn’t even possess the equivalent of a middle school education) were decimated when a leverage-fueled mania became a self-fulfilling prophecy in the wrong direction.
Meanwhile, Dow Jones suggested Didi belatedly internalized the Party’s message. According to The Wall Street Journal, the company is considering going private in an effort to placate Chinese authorities and compensate investors for their trouble. Sources who spoke to CNBC and, later, FT, said SoftBank sold a large chunk its stake in Uber “in part” to cover losses on its Didi investment.
The Journal article sent Didi shares surging as much as 49% in pre-market trading Thursday. “A take-private deal that would involve a tender offer for its publicly traded shares is one of the preliminary options being considered,” sources said.
The company quickly denied the story, calling it “untrue.” Didi continues to “cooperate with the government on cybersecurity,” a Weibo post read.
