China Market Connect

China Market Connect: The Four R’s of 2021 and the Three P’s for 2022

2 Min. Read Time

Join Dr. Xiaolin Chen on this week's 3 minute China Market Connect video, where she connects the dots on China's markets. This week, Dr. Chen covers the "four R's" that defined 2021 and the "three P's" that are poised to shape 2022.

Four R's of 2021: Regulation, Resurfacing of the Holding Foreign Companies Accountable Act (HFCAA), Repricing of the China Internet Sector, and Return dispersion across China's different listing venues.

Three P's of 2022: Political events, Progress implementing regulation, accommodative Policies for 2022.

Happy New Year everyone! This is Xiaolin, Head of International at KraneShares. A warm greeting from London and welcome to our first China Market Connect update. 

2021 was an eventful year for China market.

The unprecedented level of regulations introduced have impacted a few industries and created market volatilities. The intention is to remove potential risks in the system, but investors never like surprises even if the end result may have a long-term positive effect on China’s economy.

The resurfaced discussion on the U.S. Holding Foreign Company Accountable Act (HFCAA) increased concerns on potential Chinese ADRs delisting from U.S. and triggered rotations to alternative available listing elsewhere.

We also see aggressive revising down on earnings and re-pricing on valuations for China Internet companies. On average, they are currently trading at 16x earnings, that compared to 34x for its U.S. counterpart. From a fundamental perspective, this year’s pullback created an attractive entry point for long-term investors.

Lastly, the return dispersions between Mainland listed A-shares and overseas listed internet companies reflect investors' sentiment on the asset class from inside and outside of China, which reaffirmed overseas investors have overlooked the A-share markets’ resilience in 2021.

Looking into the New Year of 2022, we will watch closely on:

1) Development for domestic political events to get a better indication on government agenda and a confirmation of a new leadership which is widely expected Xi Jinping will secure a 3rd term this year.

2) There’re more evidence led us to believe, we have progressed to regulation implementation phase. The focus is now on how companies progress to achieve goals set by the government in dealing with carbon emissions, promoting future mobility, opening up financial market and supporting China technology companies to become world leaders, which are all the drivers to contribute to a sustainable long-term growth for China.

3) Lastly, we expect Policies to stay accommodative in supporting the economic growth, and the transition to green investment. We believe the policymakers will shift the focus from de-risking towards supporting growth in 2022.

If you have any topics on China market that you’d like us to address in our update, please do get in touch.

This is KraneShares China Market Connect, I see you next week.