17 Dec 2021: Will short term economic pressure in China bring blessing to Chinese tech stocks

Soon after, there are reports that said Evergrande's creditors are filing for 13 billion USD liabilities claims from Evergrande. PBOC of China has stated that this will not be a market event disrupting market stability in China and Hong Kong but nevertheless, we note that Guangdong state has sent in a restructuring team to the headquarter of Evergrande to "assist" in such matters.

But all in all, RMB is still strong and PBOC has recently reduced the reserve deposit to be maintained at the banks thereby releasing more liquidity into the system. Bearing in mind the strong RMB may not help in exports though China has been pushing for its own domestic consumption to support its GDP, we nevertheless know that a too strong RMB would not be ideal. This comes at a time when USD in itself is also appreciating meaning RMB has appreciated way stronger than years ago. So how can PBOC and Chinese authorities come out with new measures?

I predict that PBOC will eventually work with CSRC, cyberspace admin, SAFE to allow the overseas investment by Chinese citizens thereby allowing the demand and supply balance of RMB (out and in) to be healthier rather than simply allowing strong demand for RMB due to the opening of its financial markets. As for the tech regulations, I believe it will be clarified in 2022 given that tech companies have grown to become so important to China's economy. If this is the case, then hopefully the PBOC and CSRC can have a good talk with cyberspace admin to say that the pressure on tech companies should be less intensive so that these tech companies can contribute to tax revenue to the country as well as generating jobs for China. Also, this can provide more inflows of funds into the tech companies once the tech regulations have been clarified.

These two steps are two logical steps.... But will China really do these two logical steps? I will leave it to time to show if my analysis and predictions will be right.

As always, this should not be construed as any investment or trading advice.