Source: Visual China
Author 丨Liusi Zhang Rui
Edited by 丨 Kang Xiao
Produced | Shenzhen Network Tencent News Xiaoman Studio
Few people expected that The Chinese stock market would evolve into a dangerous situation today. This past week, the crisis has intensified. As of Friday's U.S. stock close, 89 Chinese stocks had fallen more than 10 percent, with Didi ADR closing down more than 44 percent, the company's biggest one-day drop since its U.S. IPO; the Hang Seng also gave back all of its year-to-date gains.
Among the technology stocks, Alibaba fell 6.68%, NetEase fell 3.23%, Pinduoduo fell 10.15%, JD.com fell 8.63%, Baidu fell 12%; more Zhongchao Medical fell as much as 38.2%, Wuxin Technology fell 36.32%, Tuya Smart fell 32%, Lexin fell 26.5%, And Manbang fell by 26%; among new energy vehicle stocks, Ideal Auto fell more than 14%, Xiaopeng Automobile fell more than 12%, and Weilai Automobile fell by more than 9%.
"The valuation system and logic of Chinese stocks have now come to a time when they must be re-examined." An investor told The Deep Web.
Investors who were once eager to try no longer dare to easily copy the bottom, they stand on the mountainside, unable to see where the bottom is. Countless people followed Munger and Duan Yongping to the bottom, but the results saw that it was meaningless to find the reason for the rise and fall, because the rise and fall itself represented a kind of logic.
The plunge may continue. The dream-making myth of the Internet remains in the memory, leaving only Ali for $86, Pinduoduo for $32 and Didi for less than $2.
42 Chinese stocks fell 90% of their market value in a year
Investing in Ali is the most regrettable decision since entering the stock market happily.
At the end of 2020, Ant Financial's listing plan was stopped, the stock price fell all the way, although trapped by policy risks, but optimistic about the future potential of Ali e-commerce, gladly decided to bottom out.
Ali's stock price then fell all the way down, becoming the largest decline in Xinran's account, once as high as nearly 70%. "I thought I had copied the bottom, but I didn't expect to be raided."
This is very different from Ali's situation when he was just listed on the New York Stock Exchange. At that time, Ali created the largest IPO in U.S. history, and its largest shareholder, SoftBank, became the absolute winner behind the feast.
In the eight years since its listing, Alibaba's revenue has risen from 76.204 billion yuan in 2014 to 717.289 billion yuan in 2021, nearly 10 times. However, the total market capitalization has dramatically fallen back to the beginning of the listing.
On the first day of Alibaba's listing in 2014, its stock price closed at $93.89, with a market value of $238.332 billion. On March 11, 2022, Eastern Time, Alibaba closed at $86.71, and its total market capitalization was only $235.063 billion.
In this storm of collective plunge in Chinese stocks, Ali is not the only giant who has fallen.
Pinduoduo, which is comparable to Ali in the e-commerce field, has successfully listed as a capital darling in less than three years since its establishment, and its stock price and user scale have soared for a long time since then. But after hitting a peak of $212 in February 2021, it plummeted all the way down, and the stock has fallen to $32 so far, despite its continued profitability over the past two quarters.
According to Oriental Wealth Choice data, as of March 11, Eastern Time, there were 111 Chinese stocks with stock prices falling by more than 80%, and 42 stocks with a decline of more than 90%.
Didi, Huya, Wuxin Technology, iQiyi, Tencent Music, Vipshop, Shell, Bilibili, Pinduoduo and other companies fell by more than 80% in a year.
Among them, Didi fell 86.6%, Huya fell 86.1%, iQiyi fell 89.5%, Tencent Music fell 87%, Vipshop fell 84.5%, Shell fell 83%, Bilibili fell 82.7%, and Pinduoduo fell 80%.
Among the Chinese companies that fell by more than 90%, education companies accounted for a relatively large proportion. Education companies such as Zhangmen Education, Gaotu, Elite Education, Park New Education, Good Future, Together Education Technology, New Oriental, 51Talk, and Liulishuo all fell by more than 90%. Among them, the head education fell the most, at 99.9%, from the highest $20.52/ADR to $1.26/ADR.
"Many people buy U.S. stocks thinking that they will not lose money, after all, the past decade has been a bull market," a securities analyst expressed his concern about the "Deep Web", "This time there are still people reading the bottom, I don't know what the final result will be, and I don't know if there will be many people blowing up." ”
He believes that the plunge in stock prices does not mean that the company's fundamentals have changed significantly. Conversely, most companies have maintained solid growth over the past few years, and some companies that used to burn money for size have shown signs of profitability, but the logic of past valuations no longer works.
For example, Vipshop's revenue year-on-year growth rates from 2018 to 2021 were 15.93%, 10.02%, 9.53% and 14.92% respectively; net profit was 2.133 billion yuan, 3.986 billion yuan, 5.919 billion yuan and 4.693 billion yuan, which has maintained steady growth and profitability, but now the market value has fallen by 86%.
The traditional logic of what Buffett embraces as the golden rule of "value investment" – the price of stocks fluctuates around the intrinsic value of the enterprise, and in the long run there is a trend toward the return of the intrinsic value of the enterprise - the traditional logic no longer exists. Investors sighed helplessly, "There is no need for a reason to fall up."
Some people even turned out Buffett's past investment classic cases, in 1973, when the stock market fell sharply, Buffett bought $10.63 million in the Washington Post, and finally got a 127 times return in 2006, a total of 33 years.
But looking at the present, not many people can see the future trend and make correct judgments.
A few big mountains on the head of the Chinese stock
Looking back at the declines and falls of Chinese stocks, it goes back to December 18, 2020, when former US President Trump signed the Foreign Company Accountability Act. This bill has been widely discussed at home and abroad.
The bill stipulates that if a foreign company fails an audit by the U.S. Public Corporation Accounting Oversight Board (PCAOB) for three consecutive years, it will be barred from listing on any U.S. exchange.
This means that the Chinese stock company will face the risk of delisting if it cannot provide the audit working papers required by the United States within the specified time.
Just one year after the bill was signed on March 10, the SEC released the first batch of Chinese companies that did not pass the audit in 2021, and BeiGene, Yum China, Zaiding Pharmaceutical, Shengmei Semiconductor, and Huang Pharmaceutical were included in the "provisional delisting list" and were required to submit relevant evidence by March 29.
Affected by this, as of the close of trading on March 11, BeiGene A shares closed at 109.31 yuan / share, down 4.11%, Hong Kong stocks closed at 110.3 Hong Kong dollars / share; and Huang Pharmaceutical Hong Kong stocks closed at 26.3 Hong Kong dollars / share, a decline of 9.47%; Zai Ding Pharmaceutical Hong Kong stocks closed at 273.2 Hong Kong dollars / share, Hong Kong stocks fell by more than 4%; and the day before, BeiGene, Hehuang Pharmaceutical, Zaiding Pharmaceutical US stocks fell by more than 5%, Zaiding Pharmaceutical US stocks fell by 9.02%.
In the face of sharp decline in stock prices, Zaiding Pharmaceutical and Shengmei Semiconductor responded that appearing on the provisional list does not mean that it will soon be delisted, and is actively looking for a solution; BeiGene believes that this temporary list is an administrative measure taken by the SEC and the company will continue to ensure compliance.
The repercussions of this news are enormous, causing the capital market to worry about Chinese stocks. The above-mentioned analyst told "Deep Net" that in addition to the five in the list, there will be more companies to be named in the future, and the trend of Chinese stock companies is not clear.
Sentiment was transmitted to the performance of the stock price, causing the stock price to plummet for two consecutive days. Among them, important technology stocks fell to varying degrees, Alibaba fell 6.68%, NetEase fell 3.23%, Pinduoduo fell 10.15%, JD.com fell 8.63%, and Baidu fell 12%.
Subsequently, the CSRC stabilized market sentiment in the early hours of Friday morning, saying that "this is a normal step for US regulators to implement the Foreign Company Accountability Act and related implementation rules", and in recent times, "the CSRC and the Treasury Department have continued to engage in communication and dialogue with the US Public Company Accounting Oversight Board (PCAOB) and have made positive progress." "But judging from the overall trend of Chinese stocks, the aftershocks may continue."
The Foreign Companies Accountability Act is just one of the reasons for the plunge in Chinese stocks. Since the Russian-Ukrainian crisis, the extremely fragile global capital market has once again ushered in bearish news.
CCTV reported that on March 11, EASTERN TIME, the United States announced new sanctions against Russia, focusing on the abolition of PNTR treatment, or "most-favored-nation treatment," with the Group of Seven and EU members. In addition to the sanctions already imposed on Russia, the United States will also increase tariffs on goods imported from Russia. The bill is expected to be voted on as early as this week in both houses of Congress.
The abolition of Russia's "most-favored-nation status" means that the door to "destructive taxation" between the United States and Russia is opened. Affected by this, the three major U.S. stock indexes closed lower on Friday. Among them, the Dow fell by 0.69%; the Nasdaq fell by 2.18%; and the S&P 500 index fell by 1.30%.
Risk aversion has heated up, and the accelerated return of international capital has also caused a huge impact on the liquidity of Chinese stocks such as the Hong Kong stock market.
Other Chinese companies that have fallen sharply also have their own reasons.
For example, the first wuxin technology of Chinese electronic cigarettes fell more than 36% at the close on Friday, hitting a new low in listing. This is because the State Tobacco Monopoly Administration previously issued the "Administrative Measures for Electronic Cigarettes" and publicly solicited opinions on the national standards for "electronic cigarettes" (second draft for solicitation of comments). The second draft for comments clearly states that e-cigarettes should not present other flavors other than tobacco. For the special e-cigarette that relies on flavor to attract audiences, it is undoubtedly a huge bearish.
JD.com, on the other hand, is because the financial performance has once again fallen sharply from profit to huge loss.
Of course, from the perspective of future growth, Chinese stocks have also bid farewell to the best era, the population and traffic dividends have disappeared, and under multiple pressures, giants such as Ali and Tencent are facing growth dilemmas.
Look for the next wave
"I think the financial war has just begun, an era has passed." On the evening of March 10, Bao Fan, founder and CEO of China Renaissance Capital Group, sighed in an investment group.
"As of yesterday, the entire Chinese ADR assets are not very good investment targets, everyone wants to go out, no one stays. （As of yesterday the entire Chinese ADR asset class has become uninvestable. Everyone wants out. Nobody is staying. ）”
In the nearly 30 years since Chinese companies first issued ADS in the U.S. market in 1993, Chinese stocks have set off multiple waves on Wall Street. To this day, Alibaba, JD.com, Pinduoduo, etc. are still the "big blue chips" in the eyes of well-known foreign investment institutions.
But today is different. Standing in a longer-term time dimension, the rise of China's mobile Internet in 2010 and the giants that have grown up, experiencing a decade of rapid development ushered in an inflection point in early 2021, whether it is giants Ali, JD.com, Meituan, Pinduoduo, or rookies Weilai, Xiaopeng, and Ideal, here are their short highlight moments.
Nowadays, Chinese stocks are no longer the target of heavy positions. Hillhouse's fund manager HHLR Advisors, which focuses on secondary market investments, reduced its holdings in Pinduoduo, Bilibili and Didi in the third quarter of last year.
With the increased risk of uncertainty in Chinese stocks, in recent years, more than ten Chinese stocks such as NetEase, JD.com, Parkson China, Huazhu Group, Zhongtong Express, New Oriental, Baidu, Bilibili, Xiaopeng, Ideal and Weilai have returned to Hong Kong for the second time.
But this is not a "panacea". The above-mentioned analyst told "Deep Net" that it is not difficult to return to Hong Kong stocks, but the key is that all the Hong Kong stock exchanges are not able to undertake so many Chinese stock companies, and the flow of Funds in Hong Kong stocks is weaker than that of US stocks, which is a big problem.
The end of one trend means the beginning of another era. Where is the next wave?
"The huge opportunities brought about by the change in the technology paradigm," said Zhang Lei, founder and CEO of Hillhouse Capital. In the next two to five years, Hillhouse Capital is optimistic about the four major subdivisions of semiconductors, cutting-edge technologies, new energy, and intelligent hardware in the field of science and technology, and hard technology will be called "a historic structural investment window period".
Jingwei China, which once heavily invested in China's mobile Internet, has also turned its attention back to the new energy industry chain, intelligent manufacturing, biomedical treatment, and enterprise service track.
Perhaps as Bao Fan said, "We should all feel very fortunate and proud to be part of history." Now we must rise above and beyond to face a brave new world. ”
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