China: Time to buy

China’s stock market had been in steep decline since the CCP began a series of crackdowns on its tech, education and real estate sector that demonstrated the risk of investing in a autocratic, one party system with few checks and balances or legal protection.  Share prices had fallen to 10yr lows, emblematic Alibaba was down 70% from high and at its IPO price. Then, with a few words from the CCP signaling the end to regulation changes and that it was good to own stocks, the market rallied over 30%!

We have longed been skeptical of Chines accounting and reporting standards as well as the power on companies that the government held that made China a poor investment option despite its size and growth potential. These concerns have not changed. However, given the policy change and the extreme oversold natura of China stocks we are buying into the tech sector via two funds YINN and KWEB.

YINN is not for the faint of heart, it moves 3x more than its underlying benchmark while KWEB is focused on China tech sector. We believe that China shares should have a permanent valuation discount vs USA or EU stocks and are looking for the market to recover half of what it has lost. The risk of another change in policy is always present.

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