Ollie Parsons from our Bishop’s Stortford office writes this week’s update
With the latest changes of the UK traffic light system, seeing downgrades for the likes of Austria, Norway, and France, us Brits have been less focused on red, amber and green, instead looking to gold, silver, and bronze in the Tokyo Olympics. Whilst we are behind all the Team GB athletes, we at Ravenscroft, have been giving extra support to our sporting ambassador, Guernsey-born Cameron Chalmers, who was a member of the 4x400m relay Mixed and Men’s teams.
In terms of the financial markets, a recent move by the Chinese authorities to clamp down on the After School Tutoring (AST) market, as detailed in last week’s article, has essentially caused the Chinese education sector to become non-profit overnight. Obviously the impact to that sector has been seismic, but the ripples have spread further afield as investors consider the ramifications of the politically motivated Ethical, Social, and Governance (ESG) drive in China. This will undoubtedly impact other sectors.
With the so called ‘tech crackdown’, there is plenty of speculation as to which sector the Chinese authorities will turn their focus to next. The markets as ever are in the forward-looking mode and seem to view the Chinese healthcare sector as a likely target, with a small investor sell off causing a 20% dip over two days in the Hang Seng Healthcare Index [1]. It is no shock to see the healthcare stocks with a technology overlap being amongst the worst hit, stocks such as JD Health International and Alibaba Health Information Technology [2].
Both logic and consensus suggests that there is much more to come as President Xi Jinping’s regime looks to level the social equality playing field across a wide range of sectors. Real estate has long been regarded as an industry in need of reform as homes [3] have become increasingly unaffordable for the average Chinese family and the gaming industry, already dealing with regulations put in place in 2018 and 2019, is now facing potential cuts to tax breaks to online video gaming firms, as they have had a growing global influence, according to the Securities’ Times newspaper.
Whilst the long-term prospect for growth in emerging markets generally, and China specifically, remains undiminished, there is a lack of clarity in the short term. Changes in the education sector have been absolute and clear. Changes in technology and property segments remain to be fully detailed, let alone understood, so we should expect further volatility.
Looking ahead, and as autumn draws nearer, the Q2 earnings season is coming to a close with broadly positive outcomes across most sectors and geographies, tempered though by concerns around supply bottlenecks impacting industrial output. Recently announced German industrial output for June surprised markets with a drop of 1.3% against a consensus outlook for a rise of 0.5% [4]. However, consumer demand remains strong, and the output declines can be clearly traced back to specific shortages in semi-conductors, timber, steel etc. So in theory these output drops can be quickly recovered with improvements in supply, and of course improving pricing power; which in turn will keep the central bankers awake at night.
Sources:
[1] https://www.hsi.com.hk/eng/indexes/all-indexes/hshci
[2] https://www.reuters.com/business/china-health-stocks-slammed-investors-fear-regulators-diagnosis-2021-07-28/
[3] https://supchina.com/2021/08/02/chinas-big-tech-crackdown-a-guide/
[4] https://www.reuters.com/article/us-germany-economy-industrialoutput/supply-problems-cause-fall-in-german-industrial-output-idUSKBN2F70PZ
