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The value of Chinese shares on Wall Street has soared from just a few billion dollars to $2tn over the past two decades as investors turned a blind eye to the precarious legal structure underpinning many of the country’s biggest US listings.
But a crackdown by Beijing on China’s $100bn tutoring industry over the past week has included a ban on companies using this structure, known as the variable interest entity (VIE), raising the spectre of a broader disaster for some of the world’s biggest investors.
The move has wiped tens of billions of dollars off the market value of New York-listed Chinese companies on fears that the ban on tutoring VIEs could extend to other sectors.
For now at least, the sharp sell-off in Chinese stocks has slowed. The technology-heavy Nasdaq Composite index rose 0.7 per cent cent Wednesday following this week’s rout in Chinese stocks. Hong Kong’s Hang Seng rose more than 1 per cent, after tumbling more than 4 per cent on Tuesday. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks gained 0.2 per cent after a 3.5 per cent fall in the previous session.
Meanwhile, the chief executive of DWS, one of Europe’s largest investors, dismissed the escalating regulatory crackdown in China as “noise”.
Five more stories in the news
1. Fed signals taper decision is nearing The Federal Reserve signalled it was moving closer to withdrawing its support for the US recovery by tapering the central bank’s asset purchases. For now, the Federal Open Market Committee kept its main interest rate close to zero and said it would continue buying $120bn in debt per month, at the end of a two-day meeting.
2. US infrastructure deal close to finish line A group of US senators and President Joe Biden have resolved the biggest sticking points in talks on a $1tn bipartisan infrastructure bill, with a new vote on one of US President Joe Biden’s top economic priorities possible later on in the US evening. (FT, AP)
3. Taliban officials visit China Mullah Baradar Akhund, a top Taliban official, led a nine-member delegation to Beijing on a two-day visit, where he met China’s foreign minister Wang Yi on Wednesday, according to the Islamist group. The group discussed security issues as regional powers jostle to protect their interests in the final stages of the US withdrawal of troops from Afghanistan.
4. Biden warns cyber attacks could lead to a ‘real shooting war’ Joe Biden has warned that cyber attacks could escalate into a full-blown war as tensions with Russia and China mounted over a series of hacking incidents targeting US government agencies, companies and infrastructure.
5. Morgan Stanley lifts junior pay Morgan Stanley is increasing salaries for its junior investment bankers, making it the latest Wall Street bank to lift pay following complaints about the industry’s gruelling working conditions. First-year investment bank analysts will earn $100,000 per year with second-year analysts taking home $105,000, according to a person familiar with the matter.
Tokyo Olympics round-up
Four-time Olympic gold medallist Simone Biles withdrew from the women’s all-around gymnastics final, a day after pulling out of the women’s team final.
Japan’s Yui Ohashi won her second gold medal after beating American Alex Walsh in the 200-metre individual medley. She’s the first Japanese female swimmer to win two Olympic golds.
Fiji remains on course to retain their Olympic title in the Rugby sevens competition after overpowering Argentina 26-14 in Wednesday’s semi-final.
Athletes have expressed concerns about the conditions amid temperatures above 30C and humidity reaching 63 per cent. “I can finish the match, but I can die,” Russian Olympic Committee’s Daniil Medvedev told a tennis umpire.
a very metal moment in the Olympic tennis just now as Medvedev casually asks what happens if he dies on the court pic.twitter.com/kotZxePtEw
— Timothy Burke (@bubbaprog) July 28, 2021
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The day ahead
Robinhood IPO The retail brokerage app will begin trading under the ticker ‘HOOD’ on the Nasdaq today. It is seeking a valuation of up to $35bn as it aims to price its shares between $38 and $42 apiece. Its decision to reserve an unusually large stake for its own customers has money managers girding for a volatile trading debut.
Earnings All eyes will be on Credit Suisse’s new chair António Horta-Osório when the 165-year-old bank reports earnings today following the chaos of the Greensill and Archegos scandals. Big Tech’s banner week is expected to continue when Amazon reports in the US on Thursday. There will also be results from Airbus, Mastercard, Samsung and Total. See our full list here.
US GDP The country’s second-quarter gross domestic product figure, set to be released today, is expected to accelerate 9.2 per cent, but pandemic-era growth is likely to hit its peak. (CNBC)
Fully vaccinated visitors to England coming from the US and parts of Europe will be allowed to skip quarantine, the UK’s transport secretary announced.
Google has become the first big US tech company to require its workers to be vaccinated before they return to work on one of its campuses.
Developing economies’ limited access to vaccines threatens to hinder the global economic recovery from the pandemic, the IMF has warned.
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What else we’re reading
It’s not too late to save Tunisia’s shaky democracy Just as the US and the EU prevaricated while then-army chief Abdel Fattah al-Sisi made his move in 2013 in Egypt, so too do they appear to be watching which way the wind is blowing in Tunisia — but this is short-sighted, writes international affairs editor David Gardner. The US and the EU must use the leverage they still possess.
Hong Kong warnings of terrorist threat met with scepticism After authorities this month branded two incidents in the territory as terrorism, experts are asking if the suppression of dissent is fomenting a violent underground resistance. Others question whether officials are exploiting isolated events to build a case for a Xinjiang-style security crackdown.
The investor shift to bespoke equity portfolios The biggest names in asset management are preparing for a major shift to an era in which investors demand customised equity portfolios that have traditionally been the preserve of wealthier clients. Fund managers expect this will mark the next stage in the democratisation of finance.
Have we entered a new phase of climate change? A Canadian village records heat of 49.6C, tsunami-like floodwaters tear through German towns and Chinese subway passengers stand in chest-high water. Scientists have long predicted a smooth rise in temperatures but that view is beginning to change. Some question whether this is the end of summer as we know it. (FT, NYT)
The HTSI culture guide to summer 2021 Leading fashion designers, actors, stylists and journalists select their favourite books, playlists and podcasts for a summer full of reading, listening and viewing.