Daily Brief: Chinese Stocks Are Suddenly Back In Favor, And Pinduoduo Is Leading The Charge

Daily Brief: Chinese Stocks Are Suddenly Back In Favor, And Pinduoduo Is Leading The Charge

over 2 years ago3 mins

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Pinduoduo reported strong quarterly earnings on Tuesday, as China’s “Amazon for farmfoods” proves that your greens really do help you grow up big and strong.

What does this mean?

Pinduoduo actually reported weaker-than-expected quarterly revenue, but its all-important profit came in ahead of forecasts. That’s probably not the only reason investors were so keen on its stock, either. See, China’s been cracking down on companies left and right, and it’s been causing all sorts of problems: the country’s stock market is down nearly 16% over the last six months. But this week investors seem to have spotted an opportunity to “buy the dip”, snatching up stocks of Chinese tech giants like Tencent, Alibaba, and JD.com on the cheap. And Pinduoduo was no different: investors pushed its share price up 15%.

China’s big three sites

Why should I care?

For markets: Cathie knows.

Investors might’ve chosen now to start piling into Chinese stocks because of Cathie Wood: the Ark Investment Management CEO – who shot to stardom when her company’s flagship fund climbed 150% last year – revealed on Monday that Ark had bought shares in JD.com. And given that the firm has otherwise been offloading Chinese tech stocks in the last few months, the swift turnaround might’ve convinced other investors to buy back in.

Chinese stocks

The bigger picture: The crackdown isn’t over till it’s over.

It can’t hurt that China’s recent announcements have started to put investors’ minds at rest, with the government implying that it’s just looking to improve compliance standards, rather than hobble the tech sector altogether. That’s not to say it’s about to go easy on the industry: Didi confirmed this week that it had suspended plans to expand into Europe until the ride-hailing giant agrees with regulators how to handle passenger data. Throw in a crackdown on ride-hailing fees that could halve Didi’s profit margin, and China’s companies might not be out of the woods just yet.

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Hedge Funds Are Turning Away More Investor Money Than Ever

Hedge funds image

Data from Bloomberg out on Tuesday showed a record number of hedge funds are turning down new investors – but honestly, it’s not you, it’s them.

What does this mean?

It might sound odd that a hedge fund would pass up on more money, but there are a couple of reasons it actually makes sense. For one thing, most funds only want to invest a set amount of cash in each of their strategies. If they have more than they need, they’ll either hold more in cash – where it’s not doing any work – or invest in assets that don’t actually meet the strategy’s goals. For another thing, some hedge funds pride themselves on their feeling of exclusivity, and they might simply be closing their doors to keep the riffraff at bay.

Hedge funds closing
Source: Bloomberg

Why should I care?

For markets: This cloud has a silver lining.

Hedge funds have had a tough time of it since the global financial crisis, with nearly 12,000 of them closing their doors between 2008 and 2020. That’s because hedge funds – which aim to profit whether things go up or down in value – thrive on volatility, which has been hard to come by in that relatively unspectacular period of time. Last year’s antics might’ve provided some welcome relief, then: the pandemic drove a significant spike in volatility, and hedge funds’ profits along with it.

Churning profits
Source: Bloomberg

For you personally: Passive is the way to go.

Hedge funds tend to be reserved for major institutional investors with money to spare, so you might be disappointed to hear that the industry’s profits are mostly off limits. But you might not be missing out on much: consider that if you’d invested in a (far more affordable) exchange-traded fund tracking the key US stock market index when it was at its lowest point in March 2020, you’d have made returns of nearly 95% since then. That’s a return any hedge fund would love to boast…

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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