Be safe, be safe, and be safe!

March 14, 2022, Hong Kong tech stocks bloodied.

The Hang Sang Technology Index fell 11 percent in a day, the deepest drop since its inception, and China concept stock stallions such as Ten cent, Alabama, Methuen, JD.com, Xiao, etc., have suffered a blood bath.

On March 15, Hong Kong stocks continued to tumble, with the Hang Sang Index falling 6%. As for Hang Sang technology stocks, they fell 8% again!

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A-shares did not fare much better, with the CSI 300 index falling more than 3 percent for two straight days.

Now, Hu Haiquan Internet to ask Chen Yuan drug problem:

Why?! Why you? Why would you do something so wrong?

… Why? Why?!

The explanations are many, many.

The latest outbreak of COVID-19 in China on Saturday and Sunday, with 2,000 new cases reported in Jilin Province in one day, has raised doubts about whether the country’s “zero clearance” policy, which has been maintained for the past two years, can be maintained. If the epidemic gets out of control, the impact on China’s economic development can be imagined…

Plus, on Friday, the Securities and Exchange Commission (SEC) announced that for the first time it had designated five U.S.-listed Chinese companies as’ relevant issuers’ at risk of delisting under its Foreign Companies Accountability Act, triggering a broad rout in U.S.-listed stocks last week.

There are so many reasons, but to put it bluntly:

In a bull market, all the news points to the upside;

In a bear market, all the news points to a decline.

In my opinion, the root cause of this round of sharp falls in Hong Kong and A shares can be summed up in one sentence:

Safe, safe, safe!

What does that mean?

After the outbreak of the war between Russia and Ukraine, not to mention the importance of Russian oil, gas, nickel, and grain in global trade, just think about the fact that the first, second, third, and fourth largest economies in the world (US, China, Eurozone, Japan) all have territories (territorial waters) next to Russia, and who would feel safe when Russia started a war against its neighbors?

Europe is at the top of the list of insecurities, shattered by the 30 years of pretense of peace since the collapse of the Soviet Union, and news that once-neutral countries such as Switzerland, Sweden and Finland are applying for NATO membership. Except for a few countries, the rest of the European and American countries were one-sided support for Ukraine, and the sanctions against Russia were also escalated round by round. As a result, at the beginning of the war, the Russian stock, bond and foreign exchange markets were all suffocated.

What’s more, under strong public pressure, Western governments have not only completely banned a number of Russian companies listed abroad (Burbank, Russia’s biggest commercial bank, which is listed in London, has been reduced to almost zero), but have also targeted many rich Russians and officials, seizing their assets, freezing their accounts and even, Even SWIFT, which kills a thousand enemies at its own expense, has been used…

What is even more unimaginable is that Switzerland has decided to participate in the EU’s package of sanctions against Russia, freezing the assets of relevant Russian individuals and institutions in Switzerland and banning Swiss companies from doing business with the sanctioned targets…

After all, for hundreds of years, European and American countries have adhered to the “sanctity of private property” creed; Switzerland, by virtue of its neutral status, has made its banks a safe haven for dictators, corrupt and warmongers around the world. When Switzerland abandoned its belief in the inviolability of private property, it meant that the world’s assets no longer had a safe place to go.

This general sense of insecurity is the real reason why stock markets around the world began to plunge after the outbreak of the war between Russia and Ukraine.

In this case, Russian President Vladimir Putin declared that Russia could repay all its overseas debts with rubles — A virtual currency default. This kind of “come on, let’s hurt each other” signal made western funds who had been making money in Hong Kong and A-stock markets suddenly deeply feel the risk of investing in China and Chinese assets.

The Hang Sang Tech Index is made up mostly of Internet technology companies that make money in China and raise money by listing overseas, essentially arbitraging between China and the US.

They transplant or copy Internet technologies from the United States, as well as business models that have proven viable in the United States, to China, find large venture capital investments, combine China’s special conditions, use subsidies or other means to expand rapidly until they capture a niche market, and then the revenues and profits roll in.

In the past 10 years, on the one hand, these Chinese concept stocks can enjoy the dividend of China’s rapid economic development and the growing labor population; on the other hand, they can enjoy the valuation of the American capital market. In the past 10 years, these Chinese concept stocks have been the darlings of the global capital market with a smooth wind. The decade before 2021 can be regarded as the golden period of development of Chinese concept stocks.

However, as China’s demographic dividend disappeared, as the balance of economic power between China and the United States changed, and as globalization stalled since the collapse of the Soviet Union, Sino-US relations shifted from cooperation to confrontation, and from 2021 onwards, China concept stocks began to encounter headwinds.

It is important to know that no matter whether they are investing in Hong Kong technology stocks or A-shares, the reason why those funds from Europe and the US are willing to invest in Chinese assets is because they see the opportunity to make money and want a share of China’s economic growth.

But again like to make money capital, will also pursue safety first!

Over the past few weeks, the impact of the outbreak of war on asset prices has begun to be priced in. Since Friday, a series of bad news about Chinese assets, including rumors that the U.S. has told its ally China it is aiding Russia militarily, has shattered market confidence in Chinese stocks…

The record plunge in the Hang Sang Technology index over the past two days is a reflection of overseas money clearing out Chinese assets. They are liquidating their positions almost at any cost in pursuit of the safety of their money… According to their view, it will not be long before Chinese assets, like Russian financial assets today, have their stock market suspended from trading; overseas assets are sanctioned and blocked…

In this case, of course, it is to sell regardless of cost!

If you imitate the current views of overseas funds on Hong Kong stocks and A-share assets, it should be:

I don’t want anything but safety!

However, with the market killing so much that the Hang Sang Index is at its lowest level since 2012 (after all, the Fed has been printing money for the past decade and the Hang Sang Index has gone even lower), I personally feel more trusting of Hong Kong stocks and the Internet tech stallions led by Alabama and Ten cent…

I have talked before about financial stocks in Hong Kong:

“Is China’s financial sector going bankrupt?”

After these two days of sharp falls, Hong Kong stocks in a number of mainland financial stocks dividend yield has been more than 8%!

Note that I’m talking about the “dividend yield” here, not the profit margin, which is the amount of cash that the company has paid you in dividends over the past year when you bought the stock. Look around the world today and can you casually find an asset paying 8% a year (see chart)?

How could such a good thing happen if the market had not plummeted these two days?

For Ten cent, Ali, such as the benchmark Internet technology stocks, I also think, don’t need to be so pessimistic. Let us all look at ourselves:

Are you still using we chat?

Are you still using Taboo?

Are you still using Aliped?

Are you still using Methuen?

Are you still watching the video?

In fact, over the past decade or so, the middle force of these Internet technology stocks has already become China’s infrastructure, such as water, electricity and gas, which has made China far ahead in the world in Internet payments. Even though the platform companies have been beaten up, the government itself, nor is it possible to destroy the Internet’s most basic infrastructure — in which case, why should we be too pessimistic?

We should be more fortunate!

When, if not now, would it be better to buy into these Internet-based tech stocks that have been driven so low by an exodus of foreign money at no cost?

As long as you believe in China’s economy and believe that Internet technology will bring benefits to the Chinese people, those overseas funds retreating due to insecurity are exactly our safety cushion!

Safety, safety, safety what is real safety?

Whether it is A-share or Hong Kong financial stocks, or the Hang Sang Science and Technology Index includes technology stocks, cheap enough, exactly is the most important safety standard of assets!

 

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