Chinese regulators' latest clampdown rattles investors
Beijing has broadened a clampdown on businesses it blames “for increasing inequality and financial risk”, with the resultant market volatility driving Chinese stocks to the brink of a bear market.

Are Chinese stocks “uninvestable”? asks Farah Elbahrawy on Bloomberg. Goldman Sachs says its clients are wondering whether they should pull their money out after Beijing broadened a clampdown on businesses it blames “for increasing inequality and financial risk”. The resulting market volatility has pushed “key stock indexes to the brink of a bear market”.
Investors wake up
Investment trusts focused on China have suffered “average losses of a third” since a recent peak in February, notes David Brenchley in The Times. The benchmark CSI 300 index is down by more than 6% in 2021. “Chinese regulatory interference… is turning out to be one of the big stories of 2021,” says Russ Mould of AJ Bell. What’s next? Keep an eye on “highly indebted” property developer China Evergrande. The shares have tumbled by 63% so far this year as regulators address property speculation.
Investors in China have endured “an excruciating week”, says Seeking Alpha. The “deluge of news” and “speculation” about which stocks would be next in the cross hairs has created a “potent mix of anxiety, fear, anger and regret”. The government’s desire to tackle “social ills and deepening inequality… has parallels”, not least in Washington.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
But what has unnerved investors is the speed at which China is announcing new measures. When an authoritarian state makes a decision, things can change very quickly. Beijing has been cracking down on big internet firms for some time, says Thomas Gatley in Gavekal Research. Shares in the likes of Alibaba and Tencent were already having a bad year. What’s changed is that investors have “flipped from thinking” that only a few firms were in trouble to “fretting that no sector is safe”. They may have overreacted. Chinese policymakers were not too worried when the biggest losers were foreign investors (Alibaba’s primary listing is in New York). Yet the latest sell-off has hit domestic investors too, so officials are likely to start treading more carefully. Chinese regulators “hate domestic market volatility”.
Buy the dip?
Some spy a buying opportunity. “We’ve been through these regulatory tightening periods before and generally” they have “been a pretty good time to buy,” Dale Nicholls of Fidelity International tells CityWire. A significant “valuation gap” has appeared between Chinese businesses and global peers. “Chinese tech stocks [listed in the US] have suffered their worst month since the financial crisis of 2008,” says Katie Martin in the Financial Times. For some investors the temptation to “buy the dip” is almost a “reflex”. China bulls say you just need to steer clear of sectors such as education, property and tech.
Most analysts think that the current turmoil will pass. Yet it is still unclear whether the sell-off is over; no fund manager “wants to be the person hauled up in front of the boss at the end of the quarter to explain why they took on more risk just as a well-known bad situation turned worse”. As Morgan Stanley has warned clients: “no bottom-fishing yet”.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Is it time to ride the recovery in emerging markets?
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
Could the Enterprise Investment Scheme cut your tax bill?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
'Ride the recovery in emerging markets': Gustavo Medeiros of Ashmore Group tells MoneyWeek
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
What is the Enterprise Investment Scheme and should you have one?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
The alcohol industry is suffering as consumers sober up – is it still worth investing in the sector?
Changing consumer tastes are rocking the alcohol industry, but the best players are adapting their strategies. Buy them while their shares are still cheap
-
A strange calm in credit
Corporate bond markets remain remarkably relaxed, with yields that offer little compensation for risks
-
The City's big bet on green finance fails to pay out
Opinion Insurers and banks are backing away from “green finance”, and there is not much sign of the green boom we were promised. That’s a problem for the City
-
Why is English football thriving – and can it last?
What has gone so right for English football? The national team has found its feet; the Premier League is swimming in money and profits are soaring
-
Six top investment trusts for smaller stocks
Liquidity constraints mean investment trusts are best placed to seize the juiciest opportunities
-
Could colour diamonds add a sparkle to your portfolio?
Diamonds of various shades never go out of fashion, says Chris Carter