China…
The country has made a lot of people incredibly rich over the past three decades – as labor is EXTREMELY cheap in the communist country due to, well… communism.
Of course, Americans typically have a problem with communism – but when it comes to jacking up profits – its stance begins to soften a bit.
Which is fine…
We’re capitalists, after all, and we’ll take advantage of a situation if it can net us some extra cash in our pockets.
So, over the past 30 years, Chinese stocks have been on a tear – but the fact is – some of the biggest may be about to find themselves behind the 8-ball…
So if you’re holding this HUGE name (and a few others) – you may want to consider getting out sooner rather than later.
So, what’s the stock?
Well, before we get into that – you need to understand what’s happening in the People Republic of China…
Right now, the Chinese government is doing its very best to lock down some of the country’s biggest money-makers to make sure their autonomy gets reined in under their control.
So, they’re giving a few companies the “once over” in order to see if they’re operating above board – if they’re not – you can bet dollars to donuts that China is going to pull them under their control…
And even if they are operating above board – you can bet China will FIND a reason to pull them in under their ultimate control.
Right now, companies such as Tencent (TCEHY), Baidu (BIDU), ByteDance (aka TikTok) and others are being fined and reprimanded for past acquisitions and investments the government SAYS violate antitrust laws.
Of course, you’d think that China would have tightened these reins before these moves were made – but the Chinese government’s goals can shift with the wind – or whether or not your company gets on the WRONG side of a high-ranking government official.
However, all these are truly just fodder, as the government’s BIGGEST target is one of the biggest companies not only in China, but in the whole world…
Alibaba (BABA).
It wasn’t’ too long ago that the companies CEO, Jack Ma, disappeared without a trace after he famously called Chinese banks “pawnshops”…
And then wasn’t seen by another human soul for months.
Now, whether the disappearance was of Ma’s own design – or he was taken somewhere to be “re-educated” – remains to be seen…
What we do know is that one event – Saucy Jack getting saucy with the Chinese government – led to the country’s crackdown on the entire Chinese tech industry.
Beijing quickly put Alibaba under antitrust review and expanded that investigation to the entire Chinese tech sector – with the financial tech industry falling under the most intense scrutiny.
Alibaba is facing a fine that could be upwards of a BILLION dollars – which would destroy the $975 million amount China forced Qualcomm (QCOM) to paid back in 2015 for “anticompetitive practices.”
However, a fine isn’t the biggest Sword of Damocles hanging over Alibaba…
As the government has the power and ability to not only get a stock delisted…
But have them shut down completely as well.
This is government sending a message to Chinese companies: “Don’t make any deals without checking with us FIRST – because we hold the power here – not you.”
All because Jack Ma was feeling a little big in his britches one day…
And again, while we haven’t seen cases where companies have been broken up and/or mergers decoupled – it’s not beyond the government’s power to do exactly that and you can be sure that talks like these are most likely happening behind the scenes.
The take away?
Chinese companies WEREN’T getting government approval before making deals and acquisitions – letting us know that ALL is not as it seems in on the surface…
If this doesn’t shake your faith in Red stocks – than nothing will.
But take of this what you will…
If you still feel safe holding on to or investing in Chinese stocks after this – that’s your choice – but you can bet the Gorilla will think twice about investing any REAL money in the sector.
Besides…
You know that’s not how the GorillaTrades system works.
As much as news like this could affect our trading matrix – it’s not the end-all-be-all of our decision-making process.
It all comes down to hard numbers and data – if the company fits the matrix – then GorillaTrades will put out a recommendation…
If it doesn’t – we don’t.
Simple. I’d love for you to be with us on our next round of picks – but understand that joining isn’t for everybody.
Just know where here if you ever feel like you need some help – and do yourself a favor and look at your portfolio…
If it’s too heavily weighted in Red stocks – you may want to re-evaluate.
“The prosperity that drives our economic security is inherently linked to our national security. And the immense influence that the Chinese government holds over Chinese corporations like Huawei represents a threat to both.” – Christopher A. Wray