Investing in Chinese tech stocks based on state media reports can be like reading tea leaves, and just as risky
- Stockholders are turning to Beijing-based newspapers with party affiliations to discern what market-disrupting moves may come next
- It would be wrong to completely ignore or disregard such reports, but it is also unwise to take every bit of information in them as the official stance
China’s state-backed newspapers and publications are garnering interest from an unintended group of followers: investors in China’s tech stocks.
A news story running on an inside page of a Chinese newspaper could lead to billions of dollars worth of market value being erased in mere minutes. And an opinion piece penned by a researcher could lead to wild swings in stock prices from Hong Kong to New York, even though no listed company is directly mentioned.
The sudden surge in influence among state media outlets is helped by opaqueness in the process of Chinese policymaking. As state policies have supplanted business-performance indicators to become the most important factors in deciding short-term stock prices, no one can really blame investors for scrambling to glean even the slightest hint from Beijing.
It calls to mind a Chinese saying: investors are like birds frightened by the mere twang of a bowstring, even though no arrow is shot.
It remains difficult to discern the true intentions of Chinese authorities. And, unfortunately, this may remain the case for the foreseeable future. Policymakers themselves need to find the sweet spot through trial and error. For instance, there’s a consensus on enhancing Beijing’s regulation of the video game industry, but determining to what extent, and how, looks to be a long process.
There can be inconsistencies among Chinese government agencies. A regulator in charge of security will exhaust itself to ensure security, but a regulator in charge of a specific industry or market may have different priorities. The final outcome could be influenced by many factors.
Reports and opinions published by Chinese state media can serve as a flickering of light in a dark room, offering a brief glimpse as to what’s inside. But perusing these reports can also be like reading tea leaves, as doing so may easily mislead people. And readings, right or wrong, can become amplified in the era of social media.
It would be wrong to completely ignore or disregard such reports, but it would also be a mistake to take every piece of information in a Beijing-based newspaper as the official stance.
An article in People’s Daily – a Communist Party mouthpiece – usually carries more weight than an article in a publication affiliated with the newspaper, and a front-page editorial is certainly more “authoritative” in delivering Beijing’s message than an opinion piece on an inside page.
In the long run, however, the guessing game is unnecessary.
The lack of transparency, in essence, just adds a new risk factor for investment that requires a higher return to justify. When there are no such “additional” returns on the horizon, investors may have no choice but to cut their exposure.
