You Don't Need a CFA to Value Chinese Equities

What we’ve got here is a failure to communicate, as Paul Newman observed just before being shot in Cool Hand Luke. Chinese and foreign investors appear to have an acute difference of opinion over how the government’s shifting of the regulatory goalposts has affected equity valuations. A gauge of U.S.-traded Chinese stocks had fallen about 43% from its February high as of Friday afternoon, while the MSCI China Index used as a benchmark by many global investors had lost 27%. On the same day, the Shanghai Composite Index surpassed its February peak.

Cathie Wood of Ark Investment Management is among those who have sold China tech stocks, warning of a “valuation reset.” Wood told an audience of institutional asset managers that her fund had “dramatically” reduced its positioning in the country and had swapped some holdings into companies that were courting government favor by supporting its “common prosperity” campaign, the Financial Times reported last week. Legendary trader George Soros, meanwhile, criticized BlackRock Inc. for investing in China, writing in a Wall Street Journal op-ed that it was a “tragic mistake” and likely to lose money. New York-based BlackRock and other investors such as veteran emerging markets fund manager Mark Mobius have pushed back against Soros. (Ark’s Wood has also said she is optimistic about China in the long run.)