When the rules for enterprises to go overseas are issued, has the bottom of The Chinese stocks been established?

Chinese stocks

At the beginning of this year, there was a round of rapid rise in Chinese stocks. However, the good times are not long, since the adjustment of the high point at the beginning of this year, Chinese stocks have seen a sharp decline, including Tencent, Alibaba and other giant technology stocks have also appeared in the price and market value of the trend. In addition, for a number of well-known Internet companies, it is in a rapid downward trend, and some industry sectors have a cumulative decline of more than 80% during the year.

Looking at the market performance of Chinese stocks over the years, the price performance of Chinese stocks in 2021 is relatively poor. Behind the sharp decline in the price of Chinese stocks, some prophetic funds have been sold in advance, and from the information disclosed publicly in the market at present, it is mainly reflected in the change of policy environment. These include antitrust factors, foreign company accountability bills, etc.

If we look at it from a deeper perspective, the market may be worried about changes in the profitability of Chinese Internet companies, and the importance of the original investment logic and valuation system has changed. Judging from the current quarterly performance of many Internet companies, the performance has begun to show signs of differentiation, and the performance growth rate of some head companies seems to have slowed down.

If the performance growth rate of Internet giants can reach the level of 20% to 30%, then this is enough to support valuation levels of more than 30 times. If the performance growth rate reaches more than 50%, then the market gives a valuation of more than 40 times. However, taking a step back, if the growth rate of corporate earnings is only in single digits, it is difficult for the market to give a higher valuation pricing, and once the performance growth slows down to become a common phenomenon in the industry, then the market's valuation pricing may move closer to the valuation system of the utility.

Affected by the tightening of the internal and external policy and regulatory environment, the market's attitude towards Chinese stocks has not been friendly since this year. Has the investment logic and valuation system of Chinese stocks really changed significantly? If the stock market is an economic barometer, then the performance of the stock price of listed companies will also be a leading indicator of the operating performance of listed companies. Judging from the price performance of the secondary market, the investment logic and valuation system of the market for Chinese stocks have also been shaken.

In the downward trend, the market is easy to enlarge the bearish and narrow the positive. Judging from several index funds that dock with Chinese Internet stocks, the performance of the year is not optimistic. Taking the Chinese Internet Index ETF listed on the US stock market as an example, as of now, the decline in the year has reached 49.42%, and if calculated from the highest point of the year, the cumulative maximum decline has been close to 70%, which is much higher than the decline level in 2018.

The market continues to amplify the bearish factor, almost ignoring the original profitability of Chinese stocks and the profit base accumulated in the past few years. Also taking the China Internet Index ETF as an example, calculated from the closing price in 2015, the return on investment in the past 6 years is close to 0, and the cumulative increase of the S&P 500 index has more than doubled in the same period. In addition, the Hang Seng Index has only risen by about 5% in 6 years, and the Shanghai Composite Index has risen by less than 2% in 6 years.

From the content of this rule, the rules for the overseas listing of enterprises are basically listed, but there are also many flexible handling plans. For example, under the premise of complying with domestic laws and regulations, VIE structure enterprises that meet the compliance requirements can go overseas for listing after filing, which also gives enterprises operational space to go overseas for listing.

However, in view of the existence of major ownership disputes, laws and regulations expressly prohibit listing and financing, it is clear that overseas listing is prohibited. For enterprises with relevant circumstances, it is difficult to implement the purpose of going overseas for listing.

In the final analysis, behind the issuance of the rules for enterprises to go overseas, it is intended to continuously improve the compliance of enterprises and promote enterprises to carry out overseas listing activities in accordance with the law. At the same time, it also conveys to the market that the direction of expanding the opening up of the capital market will not change, and uses practical actions to negate the rumors of tightening the regulatory policy for overseas listings.

The tightening of the policy regulatory environment has a far-reaching impact on the trend of Chinese stocks. From the perspective of enterprises, in the context of legal compliance, opening up overseas financing channels and maintaining the smooth flow of overseas financing channels is conducive to the expansion and strengthening of Chinese enterprises and the continuous enhancement of their overseas influence.

The direction of expanding the opening up of China's capital market will not change, but in the era of big data, it is more necessary to protect the user's information security and national data security, and from the perspective of enterprises, it is necessary to broaden the demand for overseas financing in the context of legal compliance. In addition, for enterprises going overseas to list, it is necessary to do a good job of filing, and continue to meet the compliance requirements of overseas listing, and complete the goal of overseas listing under the premise of ensuring data security and user privacy information security.

Have Chinese stocks bottomed out? Perhaps, from the perspective of market funds, we are waiting for the confirmation of the bottom of the policy. However, after the emergence of the policy bottom, there may even be a possibility of a market bottom in an extreme market environment.

With the continuous strengthening of compliance requirements, for enterprises going overseas for listing, there will be laws to follow and rules to follow in the future, but in sensitive periods, the market will inevitably have differences, and the market still needs to continuously digest the pressure of policy uncertainty. After the issuance of the rules for the overseas listing of enterprises, Chinese stocks are getting closer and closer to the bottom of the policy, and the uncertain variable risks will also be clear.

As one of the best enterprises in China, some of the Chinese stocks listed overseas, their core competitiveness is strong, and gathered a group of high-quality talents and high-quality resources, so for these companies, they have a strong ability to recover, in the context of market investment sentiment is in the context of loose, stock prices will inevitably have the performance of increased volatility, but with talent advantages, resource advantages and other characteristics, I believe that excellent Chinese stock companies will be very adaptable, the future will pay more attention to compliance.