As we come to the end of August 2021 it looks like we are on track to end the month in green with a profit in the range of 3.5% – 4.0% assuming there are no surprises tonight. Reflecting on the month, those numbers look OK but could have been better had it not been for the recent spate of regulatory driven crashes in China. Those following my earlier posts would have noted that I took the decision to close off remaining positions in Chinese companies mid month reinvesting some of the released capital into US and UK equities.
I have visited China on many occasions, and even worked in Beijing briefly in the fintech sector where I witnessed first hand the work ethic and incredible speed with which Chinese tech firms can deliver products to market. But one lesson I learned from this experience was that international firms wishing to enter the local market were never provided with a level playing field so risk / reward ratio always had to be assessed.
I think most foreign investors purchasing Chinese equities understood this to a degree, and accepted that the rules in China were not the same, with many willing to take risks as the upsides were so attractive. However, in recent months things have taken a turn to the extreme.
From an investing perspective a free and fair market driven by company fundamentals, public balance sheets and independent scrutiny are the foundations by which the market should function. Where these elements are replaced by whimsical, politically driven rules and rhethoric; a game that we thought we knew, suddenly becomes a new game that is played without written rules, dare I say it, investing in these circumstances is akin to gambling, certainly for medium term traders studying price movements.
As an IT professional myself I am big believer in the future of cryptocurrencies. However, I don’t trade crypto assets on eToro for two key reasons:
1. The volatility from month to month can be massive.
2. There are very few solid fundamentals we can assess to determine near term price movements. We can argue all day about technical analysis but a huge whale trade, or a tweet from Elon musk can dramatically impact the crypto market at the drop of a hat, so unless your plan is to go long with a very long term view crypto trading carries a high risk on a month by month basis.
Looking at what is happening in China today we can almost say that Chinese stocks and BTC or other crypto assets now present the same type of value proposition.
Going by fundamentals $BABA (Alibaba) $0700.HK (Tencent) $BIDU (Baidu, Inc.) are all hugely undervalued but there are many arbitrary, unknown factors in the road ahead. There is even the extreme possibility of delisting at some point. In the same way that a tweet from Elon musk can boost the price of $BTC a public admonishment from President Xi can knock 30% from the share price of Tencent. This is not really how equity markets are supposed to work in my book.
As an investor who likes to study fundamentals and plan entry and exit points for trades over cycles of 3-5mths it is important for me to work with instruments that follow some basic rules, hence the recent reorganisation of the portfolio. I still believe that BABA will bounce back but I am less confident than I was that it will regain the 50% shed recently in a respectable timeframe, so for now money is probably better invested in more predictable markets.
Ending on a positive note. It has been a good YTD with +32% achieved in the first 8 months of Y2021.