The Internet industry "Network Security Law" and anti-monopoly have become stricter, the education "double reduction" policy has landed, and China's strong regulatory policy has caused global markets to worry about the uncertainty of Chinese-funded stocks.

After the landing of the "double reduction" regulatory policy, there was a panic sell-off in Hong Kong stocks and US-listed stocks, and then this sentiment spread back to A-shares. According to the late-night Xinhua News Agency, it was also reported in the market that regulators were actively communicating with overseas asset regulators. Obviously, the current strong supervision is only limited to the field of education, and there is no spread of market concerns to private medical care, medical beauty, and alcohol consumption. After the market has initially stabilized, it will take some time for risk sentiment to be fully released.

However, on the whole, there are no signs of a substantial outflow of A-shares by foreign investors. after the market sentiment has gradually stabilized, some low-valued investment opportunities that have been killed by panic have begun to emerge, and individual stocks have rebounded by nearly 50%. Some institutions even shouted that A-shares will usher in the best buying point in the second half of the year.

There is no significant outflow of foreign capital out of A shares.

Traditionally, there are a large number of technology and education enterprises invested by US dollar funds, and a large number of related enterprises listed in US and Hong Kong stocks, which are most affected by the regulation of technology stocks and the impact of the "double reduction" policy.

The Nasdaq china golden dragon index, which mainly invests in Chinese stocks, fell as much as 50% from its high in February to the end of July, but rebounded nearly 8% from its low on July 27. The hang Seng technology index moved in a similar direction, falling about 40 per cent from February highs to July lows and rebounding from lows by about 8 per cent.

In fact, due to the rebound, the decline of the two indices in the past week was not the biggest of the year. The Hang Seng Technology Index fell 6.7%, down from its biggest drop of 15% in the week at the end of February, and the Golden Dragon Index fell 4.09% in the past week. It can't even count the top three of the year, and the strong rebound draws a long underline to the week's K line.

The market once feared that policy risks would lead to a sharp outflow of foreign capital from A-shares, but there is no data to support this argument.

From the point of view of the northward capital flow that affects the A-share market, the flow direction in the past week is not significant; northward funds have a total net sale of 2.445 billion yuan, Shanghai stocks have a net sale of 6.606 billion yuan, and Shenzhen stocks have bought 4.162 billion yuan, obviously showing a wave of bottom buying momentum.

From the perspective of the northward capital buying industry in the past week, in addition to the traditional "Beishui" sectors such as cement building materials, food and beverage and finance, semiconductor sectors such as Wentai Technology have also received foreign investment.

On the whole, foreign enthusiasm for A-shares this year has not been significantly affected by the decline in technology stocks. In July, northbound capital flowed a total of 10.761 billion yuan, a net inflow into the A-share market for nine consecutive months. Northbound funds have accumulated a net inflow of 234.4 billion yuan this year, more than 208.9 billion yuan for the whole of last year.

By comparison, the Sci-tech Entrepreneurship 50 index is up 16% since the beginning of this year; the gem index is up 30% since its low in March.

The pullback of the battered fund reached 30%.

This time, Chinese stocks fell so much that one stock nearly halved in one week, and a large number of education stocks fell by more than 20% in a week. Another topic of concern to the market is funds that may burst.

Recently, many funds with heavy positions in general education stocks have begun to show performance: Yiheng Capital, which holds TAL Education Group, is reported to have fallen 18% at one point. Some hedge funds that invest in equity have suffered heavy losses, falling as much as 30 per cent during the year due to changes in the valuation of the shares.

Tiger Global Management, which currently has a size of $65 billion, is worried that it may be hit hard. As of March 31, Tiger Global held $8.6 billion of American depositary receipts from Chinese companies, ranking first among 340 hedge funds that publicly disclose such assets. The weekly valuations of these American depositary receipts are about $6.4 billion, according to the filing.

Many of the fund's positions have declined, such as JD.com, BABA, Pinduoduo and DiDi Global Inc., but the fund's main positions are not concentrated in the hardest-hit areas of education. coupled with a rebound in individual stocks may partly offset the previous decline.

But Tiger Global remains bullish on China's long-term investment prospects. The fund is reported to be optimistic because, in the past, government intervention has diminished over time, and China does not want to curb entrepreneurship.

Tiger Global is impressive in terms of long-term investment returns, with a compound return of 21 per cent for its flagship fund over the past 20 years and an internal rate of return of 26 per cent for its private equity fund.

Overseas institutions have different responses.

There have been several waves of different camps for overseas institutions in dealing with the market volatility brought about by this policy risk. The first wave is the early clearance party, of which wooden Sister is the most famous.

Katie Wood, who specializes in investing in technology stocks, manages the largest actively managed technology-based ETF in the US market. The Ark Innovation ETF, which she manages, has a size of $25 billion and held $200m of Tencent at the end of June, but has now been liquidated. The shares sold by Ark include 5.9 million shares of Tencent, 6.8 million shares of game live broadcast company HUYA Inc. and 2.7 million shares of search engine Baidu, Inc.. Its holdings in china-related technology stocks have fallen to about 1 per cent from 8 per cent in February.

Whether out of a judgment of regulatory risk or a study of short-term market trends, these timely liquidating funds have shown superior judgment. Some institutions with rich investment experience in emerging markets have long expected policy-induced volatility. Some fund managers point out that the Chinese government tends to be "counter-cyclical" and tends to step up policy implementation when the macro environment improves. This means that heavy losses can be avoided if this has been predicted, or if the market has just fallen and acted quickly.

It has recently been revealed that Third Point, a well-known US hedge fund, has also liquidated its China-related assets in recent months. In a recent conference call, fund founder Daniel Loeb pointed out that after Ant Group was suspended from listing, it had already started to reduce its positions out of concern for regulatory risks, and the remaining exposure was DiDi Global Inc., but the shares were already held by it at the private equity stage.

There is also a wave of adjustment and restriction, which believes that the existing policy risks are not within the existing risk management framework, and it is necessary to readjust the assessment of the risks related to Chinese assets, including classifying the relevant assets as a category of investments. or re-count the policy risk into the valuation framework with a certain discount factor. Strategists at Blackrock Investment Research Institute, the world's largest asset regulator, recently began to include the Chinese market in a separate category, excluding the traditional emerging and developed market categories.

Many overseas institutions are currently reassessing risks, particularly in sectors such as technology and education, a process that could take weeks for funds to make a final decision on whether to reduce their positions or buy more shares in the Chinese market.

The other wave is long-term bullish, believing that as an emerging market, it is normal for China to have short-term fluctuations and still have good returns in the long run. For example, the retirement pension in Orange County, California, believes that it is still neutral to invest in Chinese assets, and now it should be cautious to invest in Chinese assets, hoping to make a wise choice and concentrate its investment in areas with less regulatory risks in the industry, such as biotechnology.

In the long run, as part of emerging markets, volatility exists in China's DNA. For international capital, investing in emerging markets itself requires a spirit of risk-taking, and many companies that are good at investing in emerging markets have to face risks such as foreign exchange, insider trading, liquidity, financing, corporate governance and policy and political risks. Wolman, CEO of DWS Group, pointed out that investing in China requires a long-term vision and needs to learn to deal with uncertainty.

Mistakenly killed individual stocks rebounded by nearly 50%.

The contagion of market panic has caused a considerable number of targets to be accidentally injured, and even in the field of typhoon eye education, there is a certain degree of manslaughter, such as vocational education and higher education. In fact, some stocks that have been mistakenly killed have rebounded obviously.

Jiafa Education, which is listed in A shares, said that the company's main business is research and development, production, sales, implementation of educational information products with independent intellectual property rights and independent brands, and provide related services to users. mainly for the national education authorities, examination authorities and schools. K12 discipline off-campus training institutions which are not regulated by the "double reduction" policy have no significant adverse impact on the company's main business. After the market sentiment gradually eased, the stock rebounded from the low of July 26 to 46.18%.

Anxin Securities pointed out that the essence of this round of rectification of the K12 out-of-school training industry lies in the unclear positioning of shadow education, which has seriously affected the normal functions of school education, and the supervision of training institutions in the future is a long-term trend. While restricting the supply of out-of-school training, it is necessary to enhance the competitiveness of in-school education and pay attention to the market opportunities of educational institutions that assist schools. Value the vocational education sector, in line with advanced manufacturing, advanced science and technology direction of vocational education target is expected to be more flexible.

From the valuation point of view, the overall valuation of the relevant Chinese technology stocks has also fallen sharply, providing investors who are bullish on the relevant technology stocks with better valuation opportunities. Tianfeng Securities pointed out that some policy expectations are too pessimistic and the short-term decline is too large, but the direction in which the prosperity is still good, such as some new consumer areas, may bring opportunities for repair after being killed by mistake.

In early July, the Nasdaq Golden Dragon China Index was valued at roughly the same level as the Dow Jones Internet Index. But the gap has widened sharply, with the China index trading at 33 times earnings, while the US index is trading at 40 times earnings. This means that according to the traditional price-to-earnings ratio, Chinese technology companies look more advantageous.

Overall, the current price-to-earnings ratio of the S & P 500 index is 30 times earnings, while the price-to-earnings ratio of ASUS MSCI China ETF (the largest ETF in the US market) is 15 times, which is already quite attractive for capital bullish on the Chinese market for a long time. The data show that some traders bought heavily into some misvalued stocks in the new energy and semiconductor sectors, such as Semiconductor Manufacturing International Corporation and BYD, both of which rebounded strongly in the short term. The recent market discount may be a rare golden pit for institutions bullish on the Chinese market.

CITIC pointed out: first of all, there is no need to worry that the extremes of education policy will spread to other areas, and domestic and foreign funds will overreact to the policy. Second, the scale of leveraged funds on the floor is limited, there is little pressure on forced selling, and the cases after the Spring Festival show that after the short-term rapid adjustment of the market, the redemption of fund products will decrease. Third, macro liquidity remains loose, the previous domestic reserve reduction landed, and US Treasury yields fell, and the overall market expectations of macro liquidity easing are relatively stable. Finally, the driving forces and bright spots of the domestic economy remain in the second half of the year, and the trend of stable fundamentals remains unchanged. CITIC pointed out that after the release of internal and external panic, A shares will usher in the best buying point in the second half of the year.

The concept of market investment began to change.

Behind the recent sharp turmoil in the market, the change of regulatory policy begins to reflect more emphasis on educational equity and social equity, which is an important reference for investing in the Chinese market.

Recently, the "double reduction" policy has been launched, and the main guiding ideology of this policy is to improve the quality of school education and to strengthen the role of school education as the main position. On the whole, the landing of the policy will help to improve the educational opportunities of the whole people, increase the quality of the entire labor force, strengthen China's economic competitiveness in the medium to long term, and build a stronger and prosperous market economy.

Some foreign investors are beginning to realize that investing in Chinese assets should stay away from areas that could harm the public interest. In fact, the US government has had similar operations, such as regulating for-profit universities during the Obama administration: American universities usually rely on students' own loans, but the teaching and market recognition of some for-profit universities are not high. If their students do not find jobs with reasonable pay after graduation, these universities will be disqualified from granting education loans. Affected by this policy, at least two listed companies in the US market went bankrupt.

This change in the concept of governance has also given birth to a new investment direction that investors can pay attention to. Tianfeng Securities pointed out that the medium-term background of the future reflects that the assumption of macro policy variables revolves around a core, from "efficiency first" to "fairness". In this context, the main line of the policy is basically clear: anti-monopoly, anti-corruption, suppress the leverage of real estate and local government, and increase residents' disposable income by reducing the costs of education, health care, housing and so on; at the same time, vigorously support high-end manufacturing and support small and medium-sized enterprises.

Tianfeng Securities pointed out that although the above policy ideas have early signs and were not formed in a day, the severity of the education policy has made the market aware of the policy determination of the decision-making level.