Gems in the volatility of Chinese markets

In order to understand how to profit from the volatility in the Chinese market due to Government regulations, we must first understand the reason why US investors shy away from the heavily regulated Chinese market.

The primary reason is fear that in order to protect the government sovereignty of the country, government regulations might hinder the growth and profit of Chinese companies such as DIDI and BABA . Usually in environments where there are less scrutiny and less regulations, companies are able to experiment and grow at a much faster rate. The regulations are never seen in a fantastic light for companies and start ups that are looking for massive growth and profit.

As a result, investors are often spooked when news of tighter regulations imposed on companies that are expanding too fast (Especially when listing on the US stock exchange, due to trade tensions between US and China) breaks out. There have been previous cases that showcased how the government's regulatory stance can significantly impact the stock price of Chinese companies .

However, let us try to look from the other perspective. Regulations from the Chinese government might not be all that negative. The perspective to consider here, is whether the tight control that the Chinese government have would be able to positively impact a company. I believe that many of us know about NIO which is heavily backed by the Chinese government. Without a doubt they will be regulated as well. However, the involvement of the Chinese government in this case gives us an additional assurance that the company will do well in the long run.

We can be confident that such companies that have intrinsic and great value to the survival and prosperity of China will be favoured by the Chinese government. In this regard, we can be certain that fundamentally-sound and value-adding companies that prioritise China's development can be a gold mine in this atmosphere of fear and volatility caused by tighter regulations.

I believe that even with tight regulations there will be companies that are unfettered and still emerge stronger despite the challenges. This gives us a good indicator of which companies we can really invest in during times like these. 所谓, 疾风知劲草。