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An equity strategist at a large Asian bank said that China’s crackdown on private education shows Beijing’s willingness to take strong action when it discovers socioeconomic problems—no matter what investors want.
“The government is ready to make every effort to correct what people think of social and economic problems,” said Dennis Lin of DBS Bank in a webinar on Thursday. He was referring to the speed, efficiency and strength of China’s new policies.
“Stock market volatility is not a factor at all,” Lin said.
He said that for industries facing high regulatory risks, including education, e-commerce, the Internet, and healthcare, “investors are basically cautious in preparing for the worst.”
Chris Liang, chief China economist at DBS Bank, said that there has been a “fundamental shift” in the mentality of the Chinese authorities.
He said that cracking down on private education shows that the country’s policy design has now taken social factors into consideration, which goes beyond financial and economic considerations. He explained that the government is trying to solve the high cost of education, which prevents Chinese couples from having more children.
Liang added that Beijing is “willing to bite the bullet and serve long-term…social and economic goals”, even at the expense of stock market prices.
Thomas Fang, head of global marketing at UBS China, said that the fundamental intention of the Chinese government is to be pragmatic and focus on development.
But investors need to be careful when it comes to areas such as national security, monopolistic behavior or companies that are not conducive to “social value”, he told CNBC “Asian Road Signs” on Friday.
DBS’ Lin said that issues including data security and social justice will continue to be taken seriously.
Looking to the future, it is important to continue to invest in the Chinese market, Fang added.
“This really reflects how easy the market is and how easy it is for overall global liquidity,” he said. But he said that investors still need to hedge their bets while the policy is still uncertain.
Lin said that the clarification of China’s securities regulators helped rule out the worst, but it did not completely eliminate market concerns. He said that for now, old economic stocks that have nothing to do with regulatory risks are a safer bet, especially after stock prices have fallen. However, Lin believes that new economic stocks still provide good risk rewards.
“The valuation is more convincing, and the fundamentals have not been affected,” he said.