China - The Slaughter Escalates

Summary

• No person or institution should ever buy what they do not understand or buy anything that is not verified. The financials of the Chinese companies are whatever the Chinese Communist Party wants them to be. There is no verification of anything.
• The outreach by the Chinese government is relentless. In their desire to implement the mandates of the Chinese Communist Party, they are putting each and every investor in peril, without limits or boundaries.
• The situation has gone from bad to worse, and in my estimation, it is going to worsen even from here. I would not own one Chinese stock or one Chinese bond now.

D-Keine/E+ via Getty Images

On July 11, I wrote:

“China - It’s Quitting Time”

On July 30, I wrote:

“China - Don’t be an Idiot”

I hope that you were listening. I hope that you paid attention. The situation has gone from bad to worse, and in my estimation, it is going to worsen even from here. I would not own one Chinese stock or one Chinese bond now. The outreach by the Chinese government is relentless. In their desire to implement the mandates of the Chinese Communist Party, they are putting each and every investor in peril, without limits or boundaries.

Bear in mind, there are no restraints to what the Chinese government wants to do. There is no “rule of law.” There is no “due process.” There is no “judicial restraint” at all, and so, investors are being trampled upon en masse. Look to the left. Look to the right. The owners of any Chinese securities are being massacred, and who knows where the axe will fall next? The answer is no one, but I think the odds are darn close to 100% that the siege will continue.

My original concern was that the Chinese government will not allow for audited financial statements on the basis of national security. On this basis alone, I warned, I waved the red flag, I waved my arms in wild abandon to try and keep everyone out of trouble. I used the strongest verbiage that I could muster as I attempted to help all of you steer clear of this burgeoning mess. Since then, the hole has widened, deepened, and the loss of investors’ money has grown by multiples since the first incursion.

No person or institution should ever buy what they do not understand or buy anything that is not verified. The financials of the Chinese companies are whatever the Chinese Communist Party wants them to be. There is no verification of anything. Consequently, as I have stated and stated, they should not be bought, and anything owned should be sold before the knife plunges even deeper.

The Chinese intervention began with DiDi (DIDI), spread to the tech companies, enlarged to the educational sector, and now has found its way into the gaming companies, where China is mandating the people under the age of 12 will not be allowed to play online games any longer. If you think this will be the end of it then, I will respond: “You are out of your mind.”

China’s government just stated that online gaming was “Opium for the mind.” My response is that Chinese securities are “Poison for your purse.” China has become uninvestable, in my opinion, and I cannot say this strongly enough.

One would also suspect that the ratings agencies will make some drastic changes to their ratings, based upon the continuing deluge of prohibitions by the Chinese government. At some point, it may dawn upon them that investors are under siege. One can only hope that they will do the right thing, even if it curtails their revenues. We shall see.

“An enemy generally says, and believes, what he wishes.”

- Thomas Jefferson

The Barbarians are at the gate!

Original Source: Author

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Comments

[alphaseek2018]

EXITED my Chinese trades. Nice gains!!!

[ZiraManipulation]

Maybe it is an unpopular opinion here, but I actually believe CCP knows something bad is gonna hit the world economies/markets hard so they are actively trying to prevent Chinese to have more exposures to the stocks/cryptos/real estates. Without interventions, the prices of these things would have gone much higher without a doubt. Especially with the Chinese stock markets, a lot of major world indices had a massive run from last year bottom, but Chinese stock market just moved by a mere 10% or less. And China was the only country that actually had good economies activities. I definitely agree Chinese stocks are not investor-friendly nowadays, but who can tell if the same truth holds years from now? Who can say for sure that all these interventions are not good for long-term economic activities/ investment environments.

[AlexTheCat3741]

Thank you Mark Grant. I could not agree more that Communist China is no place to be putting your money. They give new meaning to the words duplicity and mendacity. Communist just being Communists, I guess and for decades now, Capitalists around the World have unwittingly failed to consider that Marxist Communism is the antithesis of Capitalism and Private Ownership. Putting lipstick on that pig doesn’t change the fact that it's still a pig.

The West was deluded into thinking that economic engagement would make that Communist Backwater more democratic and benign to its neighbors and the West. It did not happen and the Covid-19 Scamdemic is the latest example that after decades long engagement, it was a delusion of fools. To believe anything reported from Communist China is to be deceived.

What better example of what to expect from those Communist Chinese Companies that no matter how they may explain it, are CCP controlled and State Owned Enterprises, than the story of Wuhan Kingold that counterfeited 83 Tons of Fake Gold by plating bars of copper and tungsten to pad their balance sheet. The scam was detected when the bars were melted to reveal the fraud. Read about it here: www.zerohedge.com/... The company debuted on Nasdaq in 2010 and today is listed on the Pink Sheets at a value of 3 cents per share.

Given that so much of the West's manufacturing takes place in Communist China more recently, along with that blessing must be the same dramatic repercussions Western Countries realized during economic downturns, e.g., increase in unemployment and societal strife that results. Thus, the Worldwide Economic downturn due to the Covid-19 that softened demand from Western Countries similarly has resulted in the same dramatic repercussions in Communist China because along with the blessing of having acquired so much manufacturing business, so too the pain when demand slackens. Communist China and its CCP can put on a brave face and spin all the data that they may want to convince investors that all is well, but only a fool would believe it.

[alphaseek2018]

Capitalism with Chinese Characteristics!

[TheOldHand]

@AlexTheCat3741 Can we really consider China "Communist"? I might suggest "Authoritarian" and "Dictatorial" instead. And "Capitalistic" (or maybe "profit orientated") in its own, odd, way.

[greedyfellow]

You should invest in the country where people don’t while away their youth playing video games.

[Emptynester fka mom1]

@greedyfellow which country is that?

[larryjust]

@Emptynester fka mom1

Greedy, which is it? Haiti, Yemen, Afghanistan or one of the African countries?

[alphaseek2018]

@Emptynester fka mom1 China. The only major economic superpower that can make significant changes, hopefully for the good, on the dime. Here in Commie Newsom's Southern California we take 5+ years or longer to refurbish a 1 mile freeway! No kidding!!! LOL

[Veritas1010]

A kin to investing in Nazi Germany (I.G. Farben Industries) or the “former” U.S.S.R.

No way. The CCP has us (and Taiwan) in there sites. It is bad enough we have to buy from them, I don’t have to directly invest in a nation which seeks our internal decay and conquest.

[Joelg5]

When the prices are right, contrarians will follow in the footsteps of the late great John Templeton, and make big money on Chinese stocks. I would not place absolute reliance on the integrity of any auditors, or numbers in general. China does not have a monopoly on bad audits, and the USA would get at least the silver medal, if not the gold. Anyone remember Enron, ZZZZ-Best? I am not a big fan of the CCP, but they have been successful and the USA seems to be rushing at breakneck speed to outdo the CCP in many ways (e.g. mandates, social media crackdowns, censorship, punishments and job loss for dissident or incorrect speech, etc.). Criticizing Chinese auditors without offering evidence equivalent to Enron, is hypocrisy raised to the nth power. The USA cannot even conduct a simple county level election audit (in states with 200,000 more votes than voters).

[alphaseek2018]

@Joelg5 The haters of the CCP needs to travel there to see all the great achievements they have made to date. It's no joke! MIND BOGGLING SUCCESS.

[WalterNew]

Hi Mark, just short Chinese funds or stocks.
What they do?
Its like LK Coffee, the same pattern, bring shares value to minimum, delist, then list again in china…

[Gregorcal]

Belaboring the obvious here, any specific suggestions?

[Apple Dan]

@Gregorcal
Uh, sell Chinese names?

[Kwaj]

Just what the democrats dream of doing to this country

[alphaseek2018]

@Kwaj We need to take care of ourselves first. Picking fights and also fighting among ourselves (BLM, ANTIFA, Democrats, Republicans) leads to more instability here while China continues to grow and prosper!!! America FIRST!

[alphaseek2018]

Way too pessimistic. I think it's a good long term buy -5% below where it is today. I'm looking at FXI, MCHI and KWEB in particular.

[BooBooGao]

@alphaseek2018 FXI at historical low compared to S&P

[alphaseek2018]

@BooBooGao THAT's WHY YOU SHOULD BE INTERESTED!!! BUY LOW!!! SELL HIGH!!!

[aimepic]

I do not invest in China, why would I invest into a country that will be using the $$s to denude the USA it is not cheaper to buy Chinese but almost unavoidable today.

[Kwheelock1]

I created international bond/commercial paper ratings at Moody’s in February, 1974. From the outset, we required credibly audited financials. NO TRUSTWORTHY AUDIT, NO RATING. Top Japanese companies met this requirement, some European companies did not.
From my reading of financial news, and Muddy Waters reports, I would be leery of many Chinese companies. I wouldn’t bet on a ‘Chinese audit.’ In addition, there are the dangers of arbitrary, Chinese government actions, such as we have recently witnessed.

[yet_another_value_investor]

VIE shares are like bitcoins. They have zero intrinsic value but are priced according to what speculators are willing to pay. Which means they intermediately could have great returns despite being worthless in the end (if and when the CCP decides to nullify the profit sharing contracts). FOMO hot demand sets the price as with everything in the current bubble.

[BigLRP]

Political risks are really.

[kevinconnolly]

Usually I give Mr Grant a like--------BUT -------not today-------this article should be taken with a grain of salt!! Just Sayin!!

[larryjust]

@kevinconnolly

Please, let us in on your reasons to hold Chinese stocks.

[Emptynester fka mom1]

I am not now or have been in Chinese equities.
I am a responsible investor- mostly SPY, bookended with QQQ and a few individual names ay one end and SPYD/VYM and a few individual dividend stocks at the other end.
What I worry about is contagion from problems with China stocks, cryptos, SPACs and other popular/no EPS stocks impacting my investments.
I am happy to own my dividend stocks now- even if my portfolio stays flat (but hopefully does not significantly decline) over the remainder of 2021.

[PhantomII]

@Emptynester fka mom1 you have good reason to worry about “contagion”. It will happen…it’s only a matter of when.

[Cavy_style_investing]

I got a smile out of this article while browsing SA for the information to earn some tofu dinners. After reading twice, smiling, then I realize I don't know if this is a satire or a philosophical musing piece. And it hits me, this has the same feel as the Chinese ADRs recently.

I don't know if I should follow the Author, Mr. Grant or not since I am looking for data and I am getting an Onion editorial, a great surprise but way more than what I can process in the early morning.

[larryjust]

@Cavy_style_investing

Thank you, comrade.

[dixie]

CCP = the group that gave Covid to the world.

[AƮreiƉes]

@Mark J. Grant

Geez Mark...

If you can't trust a government that oppresses it's people and others by bullying and limiting basic freedoms and internet access, who can you trust? HAHA

[davenchop]

@AƮreiƉes ..like Facebook and Twitter??

[AƮreiƉes]

@davenchop

Ahh, don't even get me started on social media companies. In my opinion, they are some of the main reasons for the downfall of society these days, haha