While eyes are looking west at the unfolding US presidential elections, the real action for markets may be happening on the Eastern part of the financial world with the shockwaves still to be felt.
What country can afford to schedule the largest IPO ever to go live on US election results day and cancel it on a political diktat 48h before trading when c. $2trillion of demand has been expressed? China, via the Shanghai Stock Exchange, decided to call off the Ant Group IPO on a combination of regulatory weaknesses and changing schemes for micro lending. A few days before, Jack Ma, the man behind Alibaba and Ant Group, had received a serious dressing down by the authorities for challenging banking regulations that he called “outdated”.
We hold the view that, after Alibaba from which Jack Ma has been politely asked to step down, Ant Group is too powerful for the PCC and the PBoC. Beyond regulatory issues, there are the vast ambitions of the Chinese Central Bank to launch a digital Renminbi as a payment system in China and beyond. Ant Group innovations have the potential to make it a competitor. A depositor based central bank digital currency (CBDC) is a surveillance tool with considerable implications.
The message is that the CCP is in charge and, as it happens, had just completed its plans for the next 5 years wherein the pre-eminence of China from technologies to defence looms large.
The trouble for financial markets is that they are blind to the fact that there will be no sanction for the CCP. Investors have convinced themselves that the CCP will prefer financial objectives /returns to political ones. Sad as this may be, this is not the lesson of the last 70 years. Market mechanisms remain a tool to a political end which combines the CCP’s power with improving the greater good. Market players have to wake up to such priorities.
Ant Group’s IPO is presumably only delayed but the message needs to be heard. It applies to all fintechs. It applies to all technology companies which will not share their IPs (witness the ongoing mess at ARM China). It applies to the VAT/sales taxes applied to imported goods starting with luxury ones. It implies that valuations of European equities doing brisk business in China are at risk. This is where the shockwave is bound to be felt.
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