Retail investors have flooded the U.S listed Chinese stocks. This trend is after the crackdown of Beijing on Chinese companies. For the last one week, retail investors have flooded the Chinese stock markets more than it has ever been in history since 2014.
Total purchases of the American depositary of Chinese companies went beyond $400 million. Alibaba Group Holding Ltd – ADR (NYSE: BABA) is the most bought stock in the U.S. despite the risks associated with stock markets. It was more than double of buying off the Pfizer Vaccine, which the Food and Drug Administration approved. Since the regulatory crackdown started, Alibaba and Didi Global-ride-hailing company has been the target by the traders. Alibaba was fined $2.8 billion in an anti-monopoly probe while regulators forced Didi globals to stop user registrations.
The Chinese regulators were investigating Alibaba for possible monopolistic activity. In addition, China’s State administration for market competition stated that Alibaba had eliminated the competition in the online platform. The retail investors buy the Chinese ADRs once the price is down, but the trend declines when there is a rise in the prices. Vanda Research said that the increment is due to the retailer’s involvement in the meme space compared to the Q1.
The risk
The Chinese stocks have a risk of regulatory uncertainties, and that should make the investors more worried. The manager of Vontobel Quality, Brian Bandsma, told CNBC that the high wave of regulations since the initial response to Anti Group IPO should make the investors more carefully before investing in the Chinese stocks.
There could be a regulatory surprise awaiting the Chinese market at any time. However, Bandsma added that it would be risky to bet that the worst is already behind. Dave Wang, portfolio manager at Nuvest Capital, said that the calmness in the Chinese markets is due to the absence of bad news, and the investor’s confidence is more dangerous.
Another risk is that the technology companies are more likely to adapt to new business models in the future. As a result, they will be making the investment in the stock markets more vulnerable.
