Top Index Provider Calls China Crackdowns Cyclical After $1 Trillion Wipeout

MSCI (MSCI) sought to reassure investors that Chinese stocks will rebound from Beijing’s regulatory crackdown despite signs of extended pressure on the private sector.


The world’s biggest index provider suggested that the country’s issue with regulatory overlords is cyclical.

Regulatory compliance has weighed on China stocks “every three, four, five years and obviously the markets have sold off at the time,” MSCI CEO Henry Fernandez told Bloomberg.

“But very quickly afterwards, the markets have recovered and gone through to new heights.”

MSCI has reason to be bullish on Chinese stocks. Billions of U.S. dollars ride on funds tracking its indexes, such as iShares MSCI China ETF (MCHI) and iShares MSCI Emerging Markets ETF (EEM).

MSCI’s optimism on China comes after some investors called that nation’s stock market “uninvestable.” China’s tech crackdown wiped off about $1 trillion from the market value of local stocks listed globally in July. The biggest declines came in after-school schooling, online gaming, livestreaming and liquor.

Chinese Stocks

TAL Education (TAL) jumped as much as 14%, and New Oriental Education (EDU) surged 21% on the stock market today. The iShares MSCI China ETF climbed 4%.

And Cathie Wood’s ARK Autonomous Technology & Robotics ETF (ARKQ), which recently bought some (JD) stock, rose 2%. Previously, her funds had been dumping Chinese stocks.

Still, China has been intensifying its regulatory crackdown on technology, education and other sectors. On Aug. 17, Chinese stocks in the tech sector slid after antitrust regulators issued new rules to ban unfair competition.

The next day, Tencent warned of more regulations ahead for the internet sector, while disclosing a mixed second quarter. It vowed to work with China regulators on gaming.

Also last week, state media reports said Chinese President Xi Jinping seeks wealth distribution in a push for “common prosperity,” Bloomberg reported.

The Communist Party’s Central Committee for Financial and Economic Affairs vowed to “strengthen the regulation and adjustment of high income, protect legal income, reasonably adjust excessive income, and encourage high-income groups and enterprises to give back to society more.”


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