CNBC reports that Morgan Stanley is urging investors to be cautious on Chinese stocks, given the country’s recent regulatory crackdown on its internet companies.
The investment bank reiterated its call to downgrade Chinese stocks under the MSCI China index to equal weight, which means they are expected to perform equal to other stocks in other emerging markets. That call was first made in January this year.
Jonathan Garner, chief Asia and emerging market equity strategist at Morgan Stanley explained why the bank has repeated that call. “What we are seeing, I think, is that the anti-trust regulation is proving sort of much deeper and more long lasting than we had thought,” he said.
Fears over regulatory scrutiny on Chinese tech companies are growing again, after China announced a cybersecurity review of ride-hailing app Didi in early July.
Beijing recently started a new battlefront in tackling the use and collection of data. A data security law passed in June defined the rules around how all companies collect, store, process and transfer data. The law will take effect in September.
Authorities said last week that China plans to strengthen supervision of all Chinese firms listed offshore, as well as tighten rules around how data security is managed by firms. On Saturday, China’s cyberspace regulator proposed that any company with data on more than 1 million users must go through a cybersecurity review before listing overseas.
“So there’s a high degree of uncertainty as to how this affects the investment landscape and the growth of internet space in China,” Garner said.
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