Connect with us

Business

Spooked and stung, foreign investors must reassess China’s fast-moving economic terrain

News Agencies

Published

on

China’s policies have also led to vast capital outflows and an accelerated sell-off of Chinese stocks. According to the Institute of International Finance, investors withdrew US$7.6 billion from Chinese equities last month, along with US$1.2 billion from the bond market.

Of course, investors’ reactions to economic trends and political developments depend on their portfolios, diversification needs, risk appetites and investment horizons. But prudent investors and business leaders will use this opportunity to assess their portfolio risks and consider what to do about their China positions.

Clearly, the widening gulf between the United States and China, and the broader shift towards deglobalisation, will upend how multinational companies run their business. Specifically, companies must rethink how they obtain financing, hire across borders, and allocate capital. They should also consider centralising procurement and building resilient supply chains.

What paths could investors reassessing their China exposure take? One option is to divest all of their Chinese assets, reducing their exposure to zero.

But reducing exposure to China is likely to be a protracted process, whether it involves shrinking a portfolio of publicly traded Chinese stocks or unwinding a private equity investment. Repositioning is also likely be complicated, as sellers must find buyers in an already challenged valuation market.

Moreover, investors looking to unwind their Chinese holdings must consider the effects on their taxes, intellectual property rights, and transfer pricing, as well as many other stranded costs. And corporate investors who have long been bullish on China would need to come to terms with the possibility that they might not have any exposure to China’s economy when growth begins to pick up.

Alternatively, investors could accept their sunk costs, write down the value of their investments, and still retain some exposure to China. In essence, this would mean acknowledging that previous investments cannot be recovered while delaying on new ones.

In the context of an equity portfolio, a sunk-cost approach would result in recorded mark-to-market losses, leaving investors with the option of retaining their positions in the event of a market rebound. Similarly, a corporation that owns a factory in China may write down its asset value.

But instead of shutting it down and writing it off entirely, it could run it as a going concern without expanding output or making new capital commitments, thereby maintaining a foothold in China when the economy finally recovers.

Pedestrians in the Pudong’s Lujiazui financial district in Shanghai on October 10. One option for investors is to write down their sunk costs and retain a foothold in China for when the economy recovers. Photo: Bloomberg

Pedestrians in the Pudong’s Lujiazui financial district in Shanghai on October 10. One option for investors is to write down their sunk costs and retain a foothold in China for when the economy recovers. Photo: Bloomberg

Another option is to double down. Investors could not only hold on to their China exposure, but also take advantage of low valuations and market weakness to enlarge their Chinese footprint. But even in this scenario, global investors would be wise to recalibrate their investment strategies by adding a local partner to minimise the risk of expropriation.

Companies that decide to stay and increase their presence in China, however, could be forced to operate as ring-fenced businesses. This is likely to complicate financial reporting and increase their regulatory burdens, particularly in the face of rising trade protectionism and regional Balkanisation.

Ultimately, however, investors and corporations committed to investing in China must be innovative in how they do business in – and with – China. They would need to re-evaluate the governance and board-oversight structures of new local entities that may trade only on Chinese stock markets.

They would also have to rely on unconventional metrics, since traditional measures such as macroeconomic statistics, price/earnings multiples, internal rate of return, Sharpe ratios (which measure risk-adjusted returns) and volatility measures similar to the Cboe Volatility Index (Vix) are less reliable in such a fast-moving geopolitical, economic and financial environment.

Whatever choice they make, Western investors in China face a completely different economic terrain than the one in which they operated for more than a decade. This shift reflects domestic political developments such as Xi’s iron grip on power.

Dambisa Moyo, an international economist, is the author of four New York Times bestselling books, including Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth – and How to Fix It. Copyright: Project Syndicate

The news is published by EMEA Tribune & SCMP210520-twitter-verified-cs-70cdee.jpg (1500×750)

Continue Reading
Advertisement

Breaking News

Advertisement

Editor Pick’s

Latest Entertainment

Entertainment5 hours ago

So emotional: ‘The Voice’ Season 22’s top eight compete in Whitney-themed semifinals

‘The Voice’ Season 22 top eight contestants Omar Jose Cardona, Bodie, Bryce Leatherwood, Justin Aaron, Parijita Bastola, Kim Cruise, Brayden...

Hollywood Actress Ellie kemper Spotted in Anjali phougat Jewels by designer dream collection Hollywood Actress Ellie kemper Spotted in Anjali phougat Jewels by designer dream collection
Entertainment5 hours ago

Hollywood Actress Ellie kemper Spotted in Anjali phougat Jewels by designer dream collection

Anjali Phougat is an Ohio-based fashion designer, film fashion wardrobe stylist, entrepreneur, and founder of a luxury fashion brand called Designer...

Entertainment11 hours ago

John Travolta pays tribute to Kirstie Alley: ‘I know we will see each other again’

John Travolta and Kirstie Alley promote the 1989 movie “Look Who’s Talking.” (Photo: TriStar Pictures/Courtesy Everett Collection) The death of...

Entertainment13 hours ago

Kirstie Alley Dead: Star of ‘Cheers’ and ‘Drop Dead Gorgeous’ Dies at 71

CelebrityUS Magazine ‘General Hospital’ Star Jack Wagner’s Son Harrison’s Cause of Death Revealed Amid Scholarship Launch General Hospital star Jack Wagner’s son...

Entertainment13 hours ago

Kirstie Alley Dead: Star of Cheers Dies at 71 After Short Battle with Cancer

https://www.instagram.com/p/ClzqliopUks/?igshid=YWJhMjlhZTc%3D lley Verified • Liked by pradalover__ and others kirstiealley’s profile picture kirstiealley Verified To all our friends, far and...

Entertainment14 hours ago

Morgan Wallen Will Take 2023 ‘One Night at a Time’ on a Massive World Tour

morgan-wallen-tour.jpg 2022 iHeartRadio Music Festival – Night 1 – Show – Credit: Matt Winkelmeyer/Getty Images Morgan Wallen will be chasin’...

Entertainment15 hours ago

38 women accuse director James Toback in new lawsuit of prowling the streets of NYC to lure and sexually abuse, assault, or batter them

James Toback.Thomson Reuters James Toback “prowled” NYC to lure women using his status in the industry, a new lawsuit claims....

Entertainment15 hours ago

Box Office Bust: ‘Black Adam’ Faces Theatrical Losses

“Black Adam” has hardly been given a hero’s welcome in its box office run, generating just $387 million globally after...

Latest Sports

Sports50 mins ago

UConn’s fraught scoring struggles were exposed after Azzi Fudd’s injury

Not having her production to bail the Huskies out put a spotlight on what needs to be fixed, particularly if...

Sports1 hour ago

The most interesting thing about each of the NBA’s five worst teams

Even bad teams playing out the string feature some things worth keeping an eye on … and maybe even getting...

Sports2 hours ago

The Morning Pitt: Quarterbacks gone wild

If it seemed like there was a lot of quarterback activity for Pitt on Monday, it's because there was.

Sports2 hours ago

Here’s where the Bears stand in the 2023 NFL draft after Week 13

The Chicago Bears have the No. 2 overall pick in the NFL draft after losing to the Packers in Week...

Sports3 hours ago

UCLA women’s soccer rallies to beat North Carolina, win national title on wild last-second goal

UCLA rallied from a late 2-0 hole to beat North Carolina in double overtime on Monday night in the women's...

Sports3 hours ago

Bruins-Golden Knights takeaways: Vegas ends Boston’s home win streak

The Bruins' record home win streak ended Monday night against their former coach, Bruce Cassidy, in an emotional game at...

Sports3 hours ago

Steph Curry addresses fake viral video of five straight full-court shots

Steph Curry didn't actually make five straight full-court shots, as a viral video portrays, but he wanted everyone to know...

Sports4 hours ago

Three things to know: Anthony Davis, Lakers playing up to Darvin Ham’s vision

In his last five games, Anthony Davis is averaging 35.6 points on 66.7% shooting with 13.4 rebounds and 3.2 blocks...

Technology Hot News

Is Elon Musk Really Going to Buy Twitter? Is Elon Musk Really Going to Buy Twitter?
Technology1 month ago

Is Elon Musk Really Going to Buy Twitter?

Elon Musk, the owner of the electric car company Tesla, CEO of SpaceX, and the richest man in the world,...

WhatsApp services were affected across Pakistan, restored after 2 hours WhatsApp services were affected across Pakistan, restored after 2 hours
Technology1 month ago

WhatsApp services were affected across Pakistan, restored after 2 hours

WhatsApp services were affected in various countries of the world, including Pakistan, and India due to this users were facing...

Bitcoin vs Litecoin: A guide to understanding cryptocurrencies Bitcoin vs Litecoin: A guide to understanding cryptocurrencies
Technology2 months ago

Bitcoin vs Litecoin: A guide to understanding cryptocurrencies

Cryptocurrencies currently occupy an odd place in society. They are no longer the super niche bizarre currency beloved by tech...

Personal data of people is selling on Google Play and Google Ads Personal data of people is selling on Google Play and Google Ads
Editor Picks3 months ago

Personal data of people are sold on Google Play and Google Ads

It’s been two to three years since Google has been unknowingly hosting multiple apps from malicious actors who sell personal...

Protonmail is down a second time in the past 24 hours Protonmail is down a second time in the past 24 hours
Technology5 months ago

Protonmail is down a second time in the past 24 hours

An end-to-end encrypted email service Protonmail is down a second time in the past 24 hours, netizens reported on social...

What's better for the student: a tablet or a laptop What's better for the student: a tablet or a laptop
Technology7 months ago

What’s better for the student: a tablet or a laptop

Some analysts argue that computers have outlived their usefulness. There is some truth in this: PC and laptop sales are...

Tesla founder Elon Musk holds the Twitter deal temporary Tesla founder Elon Musk holds the Twitter deal temporary
Technology7 months ago

Tesla founder Elon Musk holds the Twitter deal temporary

USA: Elon Musk, the founder of companies like Tesla and SpaceX, can actually buy anything in the world. Last month,...

How Zafar Supari is utilizing his ability on Snapchat? How Zafar Supari is utilizing his ability on Snapchat?
Technology7 months ago

How Zafar Supari is utilizing his ability on Snapchat?

Pakistan: Zafar Supari a public figure, businessman, and social media sensation has crossed one hundred thirty-three thousand 133k subscribers on...