📮Ask Pika Nat Series #7- China property market woes🔭

Chinese stocks had a world of fun, see-sawing as investors navigated their way out of the often negative news from the domestic and international spheres. As a result, we have received numerous questions on our perspective of Chinese stocks; hence, the write up of this edition.

Let’s get into the details.

🦁Aloha, I am Alive!🦕

It was a loud calling as Chinese stocks started the week trending higher, with Alibaba leading the game after the announcement on the reshuffled of key management. The People’s Bank of China (PBOC) also announced tiny drips of stimulus to help protect the downside to economic expansions.

Essentially, the policy stimulus aims to reduce reserves held by banks to help lower financing rates for companies that are struggling. In addition, it could be seen as a move by the Chinese government in managing the potential fallout of China’s Evergrande. Indeed, the patient needs the pill.

⌛️Risks remains intact💡

Two key risks continue to loom in the market, other than Covid-19, include the delisting voices by the US and China’s ability to swim out of the Evergrande’s debt problem.

💵#1: Evergrande Debt Woes💰

In its latest filing last Friday, it hints at the need to restructure its massive debt. The company faces a whopping $82.5 million payment due to offshore creditors. However, the policy stimulus by the Chinese government on Monday may help soften the blow of possible fallout as it would release around $188 billion liquidity into the financial system.

Most striking is the company’s acknowledgement that it had received demands of payment obligation of about $260 million and that there is no guarantee they will be able to payout this debt. While the government in Guangdong province had sent a risk management team to ensure the company’s operationn sustainability, more is to be seen if there are direct handouts. The Chinese authorities hinted to the founder to use part of his wealth to shoulder the company’s debt.

Perhaps the best scenario would be an orderly restructuring in the company. Yet, the most pressing issue is the inability of the organization to shed away its assets at a pace that comforts the nerves of investors. If there is any indication, it could be more pain down the road.

🕹#2: Delisting by Didi Global (DIDI)🧯

This would be the focus area as investors wonder how the process would begin. It would be logical to see more fund managers shifting their exposure to Chinese markets by purchasing Hong Kong-listed shares.

The cloudy outlook on how delisting would turn out means an overhang on Chinese stocks. As Pika World highlights, the economic playout in China has often been a political-economy state. When politics intertwine with the engines of private enterprises, one could be domestic, and another function is external such as the diplomatic boycott of the winter Olympics in China by the US.

The simmering background tension has deterred investors from going full in with confidence into China, often seen as an attractive market of expansionary growth and capital gain.

💎Our Take on the Grand Scheme💎

Remaining invested in Chinese stocks is our stance. Nonetheless, even as China’s macro environment has turned for the better with more policy stimulus, it is wise to maintain a vigilant outlook for more certainty and clarity, especially on the blueprint of delisting. And for retail investors, this might be a challenging route.

Yet, as investors, we have the longevity of time and the hindsight of past episodes, which hopefully will be our worldly-wise torch towards the road ahead.

Thank you for spending precious time reading this edition, and we will see you in the next one.

Cheers,

Pika Nat.