While China encourages local companies to go global, the country isn’t really happy about tech firms wanting to be listed on foreign stock exchanges – especially American ones. This has led Beijing to increase its scrutiny over some of China’s biggest tech names. The country is known for wanting to keep everything under control and having such companies looking to be listed abroad seems to be happening a bit too quickly and without enough regulatory clearance in the view of Chinese regulators.
When it comes to big tech companies, having access to a massive amount of personal data on the country’s population raises questions about who controls this data, especially when the country is wondering whether or not this data could be used outside their borders. Reuters recently reported that China is working on rules to ban local tech and internet companies from listing outside the country due to potential security risks linked to data. Reviews from the Cybersecurity Administration of China (CAC) will be required to be able to list shares outside China. The CAC will not be working alone, as it would conduct the reviews with other regulatory agencies and ministries, such as the China Securities Regulatory Commission (CSRC).
Tencent, Didi, and Alibaba are perfect examples of data-heavy tech companies struggling with Chinese regulators regarding their IPOs abroad. The share prices of these homegrown companies wanting to raise money abroad have been sinking since the beginning of the year, but this situation is not all bad for active traders. There are some financial products available to take advantage of bearish markets, as well as volatile and uncertain situations like the ones these companies are facing. CFDs, or contracts for difference, are one of the most popular financial vehicles for trading market volatility and are available from a range of online brokers.
CFDs are derivatives allowing traders to trade the price of an underlying asset without actually owning it. For instance, if you want to trade a Chinese tech stock such as Alibaba, you can use a CFD on Alibaba, via a broker that provides it such as Easymarkets. With this CFD, you can bet on bullish and bearish price movements and exploit volatility with a small amount of capital, thanks to leveraged and margin trading. All you will have to do is to put aside a small portion of the total value of your trading position on Alibaba – this is called the “margin”.
If you invest in Chinese tech stocks, you can therefore protect your portfolio from Chinese tech sector challenges by using products like CFD to hedge your real positions and profit from a short-term price fall. When using CFD on Chinese stocks, always remember to protect your trading capital with money and risk management tools like stop-loss and take-profit orders. It is also important to diversify your portfolio to reduce your overall risk. Try to get coverage in different sectors, countries, and currencies that are not positively correlated, which means that they will not all react in the same way to market events.