Top dealmaker says Chinese markets are ‘close to the bottom’

By Michelle Toh, CNN Business

Hong Kong (CNN Business) – One of China’s top investment bankers says the country’s stock markets appear to be nearing “the bottom.”

Chinese markets have been battered in recent months by the impact of Beijing’s “zero Covid” policy, a real estate slump, aggressive regulation and jitters about the country’s close ties with Russia.

So far this year, the benchmark Shanghai Composite (SHCOMP) index has fallen 15%, while the Shenzhen Composite is down nearly 24%. On Monday, Chinese stock markets opened higher but struggled to sustain those gains after authorities reported grim economic data for the month of April.

“I do believe the market is close to forming the bottom now,” Fan Bao, CEO of China Renaissance, an investment bank and private equity firm, said in an interview with CNN Business in Hong Kong on Friday, referring to Chinese stocks. “I must say, [overall investor] sentiment is pretty bad.”

Bao said he believed China wasn’t facing a crisis, but rather that the debate had become “too negative” lately as global asset managers raise concerns about investment opportunities in the world’s second largest economy.
“We’re actually seeing this as a great investment opportunity,” said Bao, sitting in front of a sign in his office that read: “BullMarket4ever.”

He added that his Beijing-based firm, which invests in startups through several funds, had recently been able to cut deals at valuations slashed to half of what they used to be.

“I don’t think people need to panic.”

Bao has ample motivation to stay optimistic — he is a current and previous adviser to the stock exchanges in Shanghai and Shenzhen, respectively.

His firm, which manages approximately $7.7 billion in assets, also relies heavily on the performance of Chinese tech companies, which have faced intense pressure in the past 18 months as regulators took aim at some of the industry’s biggest names.

China Renaissance’s own shares are down about 40% so far this year in Hong Kong.

Bao is known as a veteran dealmaker in China, where he helped broker the 2015 merger between Meituan and Dianping, two of the country’s leading food delivery services. Today, the combined company’s “super app” platform is ubiquitous in China.

He and his team have also invested in US-listed Chinese electric vehicle makers Nio (NIO) and Li Auto (LI), and helped Chinese internet giants Baidu (BIDU) and (JD) complete their secondary listings in Hong Kong.

Mounting debate
Investor concerns have recently piled up over China, which is grappling with deep economic shocks as it continues to undergo strict Covid-19 lockdowns, including an extended one in the financial hub of Shanghai.

At least 32 cities in China are under full or partial lockdown, which could be impacting up to 187 million people across the country, according to CNN calculations.

The restrictions have disrupted virtually every corner of business, leading to widespread supply chain shocks and an exodus of expatriates.

The issue has also exacerbated a slump in Chinese stock markets, putting it among the worst performers this year, trailing Russia, the Nasdaq and S&P 500.

Private Chinese businesses, particularly in tech, had already been through turbulence due to a historic regulatory clampdown that crashed the share price of Alibaba (BABA), Tencent (TCEHY), and other titans.
Last July, Goldman Sachs (GS) analysts said that some of its clients had asked whether Chinese markets had become “uninvestable,” citing the regulatory pressure.

Chinese officials signaled some relief last month, vowing to support and “promote the healthy development” of the internet sector. But investors remain cautious.

SoftBank (SFTBF), one of the world’s biggest tech investors, said Thursday that it was continuing a careful approach to investing in the country.

Despite its optimism, China Renaissance has also slowed its pace of new investments this year, according to Bao.
But he shrugged off major concerns, likening the current market conditions to other previous downturns.

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“Every once in a while, you would see this talk about: ‘Should we reduce China exposure and … even [exit] China,'” he said, pointing to the Asian financial crisis in 1997 and the burst of the internet bubble in 2000.
Bao said while he felt it was “very hard to stay calm these days,” he tried to keep his head down and stay focused on the big picture.

“For long-term investors, who have been through multiple cycles, generally in principle, it is a good investment window when people are feeling really depressed,” he said.

— CNN’s Beijing bureau contributed to this report.


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