We’ve seen some substantial declines in the price levels of some of the Chinese tech stocks. And optically, they look very cheap compared to their history, and compared to some of their Western peers. A question we get asked a lot is, is it time to buy them.
So, the question is, what’s changed? The geopolitical environment, or the macropolitical environment for them, in terms of their relationship with both the US stock exchange regulator and, also, with the Chinese government, that remains extremely difficult.
Things may have gone a bit quieter, but the shift that started in October 2020, with the crackdown on some of the internet names, seems to be continuing. And so, from that point of view, things don’t seem to have gotten any better.
Has the growth opportunity in the Chinese economy got any better? These are, fundamentally, e-service and e-commerce names. No, it looks extremely weak. The real estate market looks broken, and that feeds through to the consumer, which feeds through to e-services and e-commerce. So, from that point of view, nothing, particularly, has improved.
Has the corporate governance of these stocks improved? Again, it’s really hard to point to a positive. We’ve seen some relistings in Hong Kong, but I’m not sure Hong Kong offers any additional regulatory scrutiny that the SEC doesn’t in the US.
We’ve not seen any substantial changes, in terms of boards or management, or some of the VIE structures within these names. And although valuations are cheap, buying emerging market stocks, particularly troubled ones, just because they’re cheap, it has, in my nearly 30 years in the industry, always come with a lot of risk. So, we continue to look for a change to the positive, but for now, we don’t see it.