How to Make Money Investing in China, Crackdown Be Damned

To many in the West, China nowadays seems like a scary place to invest, given its regulatory crackdown on enterprises that have played a large role in the nation’s stunning economic growth.

But not to Mark Mobius, one of the pioneers in emerging market (EM) investing, with a long run of good returns from Chinese stocks. Where some investors are spooked by large stocks like that of online giant Alibaba Group Holding, whose shares are down 30% this year, Mobius sees a buying opportunity. “It hurts when Alibaba goes down,” he told CNBC. “But large caps like that make for good pickings.”

The Communist-run central authority says it wants companies that are better run and more open, noted the long-time Wall Street luminary, who now runs his own shop, Mobius Capital Partners. After the current government pummeling is over, Mobius said there will be a beneficial result: “With more requirements, [corporate] governance will get a lot better.” At the same time, he added, the plight of the large businesses highlights the benefit of buying shares in smaller outfits that the Beijing regime isn’t leaning on.

No doubt, the risks of investing in Chinese stocks are higher lately. The government squelched the much-anticipated public offering on Alibaba fintech affiliate Ant Group. It is also reining in the autonomy of tutoring companies and is discouraging Chinese stock offerings elsewhere, especially in the US.

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For President Xi Jinping, who says he wants a shift toward “common prosperity,” the increased strictures make clear that the government still rules the land—not the increasingly profitable capitalist entities such as Alibaba and its billionaire founder Jack Ma, whose outspokenness lately has gone mute.

This new policy has cast a chill over investors from outside China, who were previously eager to put their money into the world’s second largest economy. China enthusiasts like Ark Invest’s Cathie Wood have cut their exposure there. In the first half of August, says data tracker EPFR Global, investors have pulled $3 billion out of China. And the iShares MSCI China exchange-traded fund (ETF) has suffered a 12% tumble this year.

As of the end of July, Mobius Emerging Markets Fund had 15.6% of its money in China, which was in third place behind India (21.8%) and Taiwan (17.6%). Before founding his own investment house in 2018, Mobius ran Franklin Templeton for 25 years, making it a leading light in EM investing. In his CNBC interview, he pointed out that, although Chinese stocks are down now, those in India and other EM locales are doing quite well.

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Tags: Alibaba, Cathy Wood, China, Chinese stocks, crackdown, Franklin Templeton Investments, iShares MSCI China, Jack Ma, Mark Mobius, Xi Jinping

Despite growing concerns among investors about the so-called “greenwashing” of sustainable investments, there “seems to be little evidence that it has become widespread in reality,” according to S&P Global.

In a recent comment, the firm said a lack of transparency on instrument labeling, reporting, and data disclosure leaves many investors wondering whether the instruments will have any real social or environmental impact. S&P cited a Quilter Investors survey from May that found that greenwashing was the biggest concern among 44% of investors regarding environmental, social, and governance (ESG) investing. The survey said investors have become increasingly sensitive to the effects of companies that may be exaggerating their “green credentials” to capitalize on the growing demand for the products.

American environmentalist Jay Westerveld first came up with the term greenwashing in a 1986 essay in which he claimed a hotel was asking its guests to reuse towels to help protect the environment when it was really just looking to cut costs. However, S&P said that since then “concerns about greenwashing have become broader in scope with companies perceived to be making exaggerated or misleading environmental claims, sometimes without offering significant environmental benefits in return.”

S&P also said the large volume of ESG marketing and labeling, combined with nonuniform sustainability commitments and reporting, has made it increasingly difficult for investors to know which claims are reliable and which are “greenwashed.” The firm said ESG investing has become so mainstream that it estimates sustainable bond issuance, including green, social, sustainability, and sustainability-linked bonds (SLBs), could collectively exceed $1 trillion in 2021, a near five-fold increase since 2018.

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“A lack of consistency in ESG terminology associated with various ESG investments has become a key concern that may drive investor confusion when it comes to identifying which companies or financial instruments conform to a given set of ESG standards,” said S&P.

The firm cited the Journal of Environmental Investing Report 2020, which found there are more than 20 different labels being used for sustainable debt instruments, which all align with different guidelines or frameworks.

“The wide scope of labels and even wider scope of what constitutes a ‘green’ or ‘social’ project makes navigating the sustainable debt space increasingly complex for investors and reduces comparability across instruments,” said S&P.

Despite the confusion, the firm said increased scrutiny by investors is the best weapon against potential greenwashing as they demand more transparency and credibility.

“It’s becoming clear that entities can no longer simply state their sustainability goals or long-term targets,” S&P said. “Ultimately, we believe that companies that can substantiate their environmental claims, and align financing with a business strategy rooted in long-term ESG goals, will be better fit to withstand potential reputational, financial, and regulatory sustainability-related risks that will evolve over time.”