Beijing’s attempts on Wednesday to reassure spooked global markets will do little to calm jitters as fear-driven volatility over Chinese tech shares looks set to define the rest of 2021.
This is the warning from Nigel Green, chief executive and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations.
"I am a better investor because I am a businessman, and a better businessman because I am no investor" - Warren Buffett In the past, the value investor Mohnish Pabrai has spoken about why investors need to have some first-hand business experience. Pabrai started his own IT consulting and systems integration company, TransTech, Inc, in Read More
China's Attempt To Reassure The Spooked Markets
It comes after the China Securities Regulatory Commission hosted a call on Wednesday evening with executives from major global investment banks and Chinese financial groups.
Mr Green says: “The aim of the call was to soothe influential groups’ collective jitters after Beijing effectively issued a ban on the country’s $100bn private tutoring sector over the weekend.
“It triggered fears of a broader regulatory crackdown on Chinese tech companies and, subsequently, sent shockwaves across global stock markets.”
He continues: “This call does show that Beijing is aware of international investor sentiment.
“However, it is unlikely to calm jittery markets completely as it appears to highlight the Chinese government’s new thinking and its increasing push for control of private enterprise.
“It also shows how quickly and without warning Beijing will move on such issues and that it could potentially ambush other sectors.”
How Will Markets React?
“News of the call lifted global markets as investors sought to buy in the dip, topping up their portfolios at lower entry points,” says Mr Green.
“However, it’s pretty likely there are more regulatory assaults to come and markets will be looking out for red warning flags.
“This means continuing volatility as investors repeatedly move in to buy the dips then sell-off, as they look for yield in an ultra-low interest rate environment.
“This turbulence will impact global stock markets as we saw earlier this week -and It can be expected to define the rest of 2021.”
Investors will be carefully monitoring Alibaba’s earnings report next Tuesday.
“As China’s largest e-commerce organisation, Alibaba should act as a bellwether for the rest of the sector. Its earnings and outlook will affect the wider Chinese tech industry,” notes the deVere CEO.
With Chinese-prompted volatility likely to shape markets for the rest of the year, Mr Green says: “Some of the shrewdest investors have consistently utilised market volatility as major buying opportunities.
“When used effectively and efficiently, volatility can be an extremely powerful investment strategy.”
A good fund manager will help investors seize the opportunities and sidestep the risks by seeking out the inevitable winners and losers from the Chinese government’s possible regulatory crackdown.
As always, investors should be as diversified as possible in order to maximise returns relative to risk. This means geographical, sector and asset class diversification.
Nigel Green concludes: “The relationship between the Chinese government and tech appears to be shifting. Investors need to tread extremely carefully, but also be positioned to seize the massive potential upside.”
t: +44 207 1220 925
About deVere Group
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.