China’s economic allure is under scrutiny thanks to Xi Jinping.
Kyle Bass, CIO of Hayman Capital Management, spoke to CNBC’s Squawk Box on Wednesday about the frustration shared by foreign investors and the evolving business climate under Jinping.
Market Transformation: Once a beacon for foreign capital, China’s pendulum swings towards a party-centric approach, deviating from its historical market-driven narrative, Bass said. “China’s moving more towards a party-based system,” which was reinforced by The Hill’s note on Beijing’s enhanced resource allocation to state-owned companies.
Legal Reforms Raise Eyebrows: Western companies face a swath of legal uncertainties, Bass mentioned, as China’s expanded counter-espionage law now encompasses a broader field of information, casting a shadow over what’s permissible. Bass emphasized the increasing unease, referencing new laws that challenge the operational norms for Western companies in China.
The flashing red lights for investors aren’t just regulatory, as recent aggressive police actions and the withholding of crucial economic data as signals deterring foreign investments, the Hill noted.
Xi Jinping’s Geopolitical Moves
Beyond economics, China’s geopolitical moves are coming into sharper focus.
“Quite literally since 2017, [Xi Jinping has] told you that his life’s mission is the reunification of China and Taiwan,” Bass said, “and that is life would have been an object failure if he doesn’t achieve that mission.”
Considering Xi Jinping is already 70 years old, Bass notes, a Chinese invasion of Taiwan will happen “sooner rather than later.”
Data Dive: China’s economic indicators paint a more sobering picture, The Hill noted. Growth is slowing, with a 0.8% uptick in the second quarter of this year, down from 2.2% in the first quarter. While Beijing counters with monetary easing, the looming question is if its measures can offset the heightened risk perception among foreign investors.
For investors, it’s important to monitor ETFs that offer broad exposure to Chinese equities, including the iShares MSCI China ETF and SPDR S&P China ETF, which track large and mid-sized companies in the region.
ETFs focused on state-owned entities, such as Global X MSCI, SuperDividend, EAFE, ETF, are in the spotlight given Beijing’s shift towards state-owned resource allocation. Meanwhile, the tech sector may face a different set of challenges. The KraneShares CSI China Internet ETF could be vulnerable, as Xi’s China doubles down on party-centric regulations, potentially introducing a fresh set of uncertainties for internet-based businesses.
Produced in association with Benzinga