Connect with us

Investment

New rules for investing in China: Lessons from Beijing’s education crackdown – CNBC

Published

 on


Chinese ride-hailing company Didi offers cars for guests of the Annual Meeting of the New Champions 2017 (World Economic Forum’s Summer Davos session) on June 27, 2017, in Dalian, Liaoning Province of China.
VCG | Visual China Group | Getty Images

BEIJING — As overseas investors reel from Beijing’s regulatory crackdown, the rapid fallout in an industry like after-school tutoring can be a guide to what went wrong, and where future opportunities lie in China.

Before China cracked down on tutoring schools this summer, major investment firms like SoftBank were pouring billions of dollars into Chinese education companies, many of which were publicly traded in the U.S. or on their way to listing there.

The strategy was one of burning cash to fund exponential user growth, with hopes of profit in the future. For the strategy to work, investors aimed for a “winner takes all” approach that they’d used with other Chinese start-ups such as coffee chain Luckin Coffee and ride-hailing company Didi.

Didi essentially paid Chinese consumers to take cheap rides through its app, beating out Uber to dominate about 90% of the mainland market, and went on to raise more than $4 billion in a New York IPO on June 30.

But it soon became clear that investment strategy might no longer work. Just days after Didi’s IPO, Chinese authorities ordered app stores to remove Didi’s app and began investigations into data security — effectively shutting down the business’s growth prospects in the near term.

It came months after Beijing’s efforts to tackle alleged monopolistic practices by the country’s internet technology giants like Alibaba and Tencent.

By late July, the education sector was clearly Beijing’s next target.

Crackdown on after-school tutoring

In harsher-than-expected measures, regulators ordered tutoring companies in kindergarten to 12th grade academic subjects to restructure as non-profits, cut operating hours and remove foreign investment. Shares of industry leaders such as Tal EducationNew Oriental Education & Technology Group and Gaotu Techedu plunged on that news. They have lost more than 75% each over the last three months.

Chinese tutoring start-ups that investment funds had placed their bets on months before suddenly lost their path to a public listing.

In October 2020, online tutoring start-up Yuanfudao said it raised a total of $2.2 billion from Tencent, Hillhouse Capital, Temasek and many other investors — for a valuation of $15.5 billion.

Two months later, competitor Zuoyebang raised $1.6 billion from investors including SoftBank’s Vision Fund 1, Sequoia China, Tiger Global and Alibaba.

“They were hoping to create another oligopoly like Didi” with market pricing power, said an investor and co-founder of one of the largest U.S.-listed Chinese education companies, according to a CNBC translation of his Mandarin-language interview. He requested anonymity because of the sensitivity of the matter.

However, the education industry already had several major market players, he pointed out, and “it turned out that no business could really beat the other before the crackdown.”

Building a dominant market leader in after-school tutoring was a lucrative prospect. The opportunity was enormous given China’s population of 1.4 billion people and a culture in which parents prize their children’s education.

Early industry players like New Oriental got their start with physically leased locations and in-person classrooms. But the coronavirus pandemic in 2020 accelerated the tutoring industry’s shift online, and the cash-burning fights of China’s internet world was in full play.

Advertising wars

Chinese after-school tutoring companies began to spend heavily last year on advertising to attract new students.

U.S.-listed Gaotu spent more than 50 million yuan ($7.75 million) in one week this past winter for ads on short-video platform Kuaishou, a person familiar with the matter told CNBC.

“In China, Kuaishou is a smaller platform than [ByteDance’s] Douyin/TikTok, so the total spend on traffic by all of K to 12 education companies would be much more than that,” the source said in Mandarin, according to a CNBC translation.

Gaotu did not respond to a request for comment. In its earnings report for the first three months of the year, the company said its selling and marketing expenses of 2.29 billion yuan were three times more than a year ago.

Tal Education disclosed that its spending in the same category surged by 172% from a year ago to 660.5 million yuan for the three months that ended Feb. 28.

Both companies reported a net loss in the quarter, as did another industry player, OneSmart International Education Group, which disclosed a 47% year-on-year surge in selling and marketing expenses to 288.8 million yuan.

OneSmart listed in the U.S. in 2018 in an IPO underwritten by Morgan Stanley, Deutsche Bank and UBS. Later that year, the education company acquired Juren, one of the oldest businesses in China’s tutoring industry.

But the new after-school regulations struck a fatal blow to the 27-year-old company. About a month after the new rules were released, Juren collapsed, just one day before public schools opened on Sept. 1.

OneSmart could be delisted from the New York Stock Exchange since its shares have remained below $1 since July.

Other U.S.-listed Chinese stocks are also struggling. New Oriental did not report a net loss for the quarter ended Feb. 28, but disclosed it spent $156.1 million on selling and marketing in that time, 32% more than a year ago.

The surge in advertising spend to grow student enrollment came as investors piled into the industry, and increased competition sent customer acquisition costs soaring.

The landscape has significantly changed.
Ming Liao
founding partner, Prospect Avenue Capital

With new capital, start-ups Zuoyebang and Yuanfudao, along with Tal Education, reportedly went on to sponsor state broadcaster CCTV’s annual Spring Festival Gala in February. That’s the market equivalent in China of buying a U.S. Super Bowl ad, which costs of about $5.5 million for a 30 second spot.

But regulators were watching. In the months before the harsh crackdown, Chinese authorities fined 15 education companies a total of 36.5 million yuan, primarily for false advertising.

Then in July, harsher regulations on after-school tutoring essentially banned advertising, prohibited public offerings of shares, and investment from foreign capital.

‘Common prosperity’ in China

The new policy marks Beijing’s latest effort to restrict the education industry’s sprawling growth and its burden on parents — a concern for authorities trying to boost births in the face of a rapidly aging population and shrinking workforce.

Investors need to recognize that tackling the population problem, slowing economic growth and tensions with the U.S., have become top concerns for the Chinese government, said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, which manages $500 million in assets.

“The landscape has significantly changed,” he said, noting that investors now need to consider national policies far more than just industry developments.

In addition to the crackdown on internet companies and after-school tutoring centers, authorities have  ordered online video game companies to restrict children to playing three hours a week.

Speeches by President Xi Jinping have emphasized the goal is “common prosperity,” or moderate wealth for all, rather than some.

Education is just one of the so-called three mountains that Chinese authorities are tackling. The other two are real estate and health care, all areas in which hundreds of millions of people in the country have complained of excessively high costs.

In the last 20 years, corporate profits have largely gone to property developers and companies based on internet platforms, Liao said.

In light of new policy priorities, he said, it’s important for investors to distinguish between internet-based businesses and those developing more tangible kinds of technology like hardware — even if both kinds of companies are loosely referred to as “tech” businesses in English.

With the U.S. now under President Joe Biden and bent on competing with China, Beijing is increasing investing in an ambitious multi-year plan to build up its domestic technology ranging from semiconductors to quantum computing.

The “China market can still offer attractive investment returns for global investors, and the challenge lies in identifying the potential future winners amid China’s rebalancing,” Bank of America Securities analysts wrote in a Sept. 10 report.

They pointed to a shift over the last two decades in the largest Chinese companies by market capitalization — from telecommunications, to banks, to internet stocks. Going forward, they expect greater regulation on internet and property industries, “while advanced manufacturing, technology, and green energy related sectors will be promoted.”

The bank listed a few contenders for “future winners.”

  • Sportswear: Anta
  • Health care: Wuxi Bio
  • Electric vehicles and and EV battery: BYD
  • Lithium in new materials: Ganfeng
  • Renewable energy: Long Yuan
  • Tech hardware: Flat Glass

“Certain industrials sectors that we currently do not cover could also have promising opportunities,” the analysts said.

Future of investing in China

For Chinese after-school tutoring companies that once attracted billions of dollars, they’re now trying to survive by building up courses in non-academic areas like art or adult education. Those in the industry say it’s an uncertain path that has a market only a fraction of what the companies used to operate in.

SoftBank is waiting for clarity on the regulatory front before resuming “active investment in China,” its Chief Executive Masayoshi Son said in an earnings call on Aug. 10.

“We don’t have any doubt about future potential of China … In one year or two years under the new rules and under the new orders, I think things will be much clearer,” Son said, according to a FactSet transcript.

When contacted by CNBC last week about its investment plans for China, Softbank pointed to how it led investment rounds in the last few weeks in Agile Robots, a Chinese-German industrial robotics company, and Ekuaibao, a Beijing-based enterprise reimbursement software company.

“Our commitment to China is unchanged. We continue to invest in this dynamic market and help entrepreneurs drive a wave of innovation,” SoftBank said in a statement.

But when it comes to bets on the education industry, some investors have decided to look elsewhere in Asia.

In June, Bangalore-based online education company Byju became the most valuable start-up in India after raising $350 million from UBS, Zoom founder Eric Yuan, Blackstone and others. Byju is valued at $16.5 billion, according to CB Insights.

Adblock test (Why?)



Source link

Continue Reading

Investment

Bitcoin hovers near 6-month high on ETF hopes, inflation worries

Published

 on

Bitcoin hovered near a six-month high early on Monday on hopes that U.S. regulators would soon allow cryptocurrency exchange-traded funds (ETF) to trade, while global inflation worries also provided some support.

Bitcoin last stood at $62,359, near Friday’s six-month high of $62,944 and not far from its all-time high of $64,895 hit in April.

The U.S. Securities and Exchange Commission (SEC) is set to allow the first American bitcoin futures ETF to begin trading this week, Bloomberg News reported on Thursday, a move likely to lead to wider investment in digital assets.

Cryptocurrency players expect the approval of the first U.S. bitcoin ETF to trigger an influx of money from institutional players who cannot invest in digital coins at the moment.

Rising inflation worries also increased appetite for bitcoin, which is in limited supply, in contrast to the ample amount of currencies issued by central banks in recent years as monetary authorities printed money to stimulate their economies.

But some analysts noted that, after the recent rally, investors may sell bitcoin on the ETF news.

“The news of a suite of futures-tracking ETFs is not new to those following the space closely, and to many this is a step forward but not the game-changer that some are sensing,” said Chris Weston, head of research at Pepperstone in Melbourne, Australia.

“We’ve been excited by a spot ETF before, and this may need more work on the regulation front.”

 

(Reporting by Hideyuki Sano in Tokyo and Tom Westbrook in Singapore; Editing by Ana Nicolaci da Costa)

Continue Reading

Investment

These are the only times it's smart to make changes to your investment portfolio – CNBC

Published

 on


Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

Recent market volatility has many investors wondering if now is a good time to alter their investments.

The short answer experts generally advise? It’s rarely actually a good time to make changes to your investment portfolio.

“Most investors who jump in and tweak their portfolios typically do it in response to market conditions and history has shown us this just doesn’t work out in their favor,” says Tony Molina, a CPA and senior product specialist at Wealthfront. “What often feels right when it comes to investing, is usually wrong.”

Though you may feel tempted to modify your investments when the market dips, you’re often better off leaving them alone for the long haul. The reality is, downturns happen but your money is safer if you ride out the storm. Just as quickly as the market can go down, it can also go up — and keeping your cash invested throughout these fluctuations is what helps your money grow over time. This is especially true when investing in index funds and ETFs.

But, we wondered, is there ever a good time to adjust your investments? Turns out, there are a couple conditions when it’s OK.

Subscribe to the Select Newsletter!

Our best selections in your inbox. Shopping recommendations that help upgrade your life, delivered weekly. Sign-up here.

When it’s a good time to make changes to your investment portfolio

While it’s typically best to leave your investments alone, you may want to change course if there has been a change in your investing goals’ time horizons, and consequently, your risk tolerance, advises Ivory Johnson, a CFP and founder of Delancey Wealth Management.

On one hand, you may find that you have extended the number of years until retirement and can take on more risk. Or, on the other hand, perhaps you’re retiring sooner than you thought and shortening that timeframe means that you need to put your money in lower-risk investments.

Using a robo-advisor is an effective workaround to avoid having to worry whether your investments match your risk tolerance. Robo-advisors have users fill out a brief questionnaire that helps them know how to best allocate your cash depending on your investment goals and the top robo-advisors will regularly rebalance your portfolio for you as needed.

Betterment, for example, will recommend a stock-and-bond allocation based on your goals and adjust automatically whenever you make a deposit, withdraw funds or change your target allocation. Betterment’s algorithms will also check your portfolio drift (how far you are from your target allocation) once per day and rebalance if necessary.

Betterment

On Betterment’s secure site

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, $0 minimum balance; Premium Investing requires a $100,000 minimum balance

  • Fees

    Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee

  • Bonus

    Up to one year of free management service with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash

  • Educational resources

    Betterment RetireGuide™ helps users plan for retirement

Terms apply.

The automated investing platform through SoFi Invest® automatically rebalances investors’ portfolios as well, but on a quarterly basis. SoFi is a good option for investors also looking for lending products as SoFi members receive a 0.125% interest rate discount on SoFi’s student loan refinancing and personal loans.

Johnson adds that he would generally change an investment allocation when a big event has taken place, such as a severe illness or a large economic windfall (like an inheritance). In both of these cases, an investor’s need for capital appreciation reduces, he says.

Molina agrees that a good time for investors to make changes to their portfolios would be in response to major life events. Specifically, he means events that put the investor in a position where they would need to access their investments in the near future (three or so years). Examples include marriage, a family emergency or as an investor nears retirement.

“This would be a good reason to reduce their investment risk or pull out their funds altogether,” Molina says.

Much of an investor’s decision to change their portfolio in this scenario depends on how soon they may need to withdraw their funds. “In general, if you need the funds within the next three years or less, you may want to consider changing your investment strategy,” Molina adds.

When it comes to investing in individual stocks, keep in mind that you should be using money that you are comfortable having tied up for at least the next five years. While individual stock investors are advised to hold for the long term (especially during times of volatility) in order to best maximize their returns, they may choose to sell a losing stock if it is more risk than they can handle and it generates significant financial loss. Investing in index funds and ETFs are an easy way to take on less risk and diversify your investments.

Bottom line

If you’re thinking of adjusting your investments, most of the time it’s probably not the best move for your long-term growth in the market.

The exceptions to this rule are if your time horizon and risk tolerance suddenly change. Another exception is if there has been a major life event where you no longer need your money to be invested, or where you could be better off financially with the cash accessible in your wallet.

Catch up on Select’s in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Adblock test (Why?)



Source link

Continue Reading

Investment

Cushman Investment in WeWork Rests on Successful Stock Listing – BNN

Published

 on


(Bloomberg) — Cushman & Wakefield Plc agreed to invest $150 million in WeWork Cos., contingent on the flexible work company successfully completing its forthcoming stock listing, a person familiar with the matter said. 

The investment was born of a partnership the two companies unveiled Aug. 9. They said at the time that they were discussing a potential investment but hadn’t signed a definitive agreement.

A spokesman for Cushman said the company was pleased with the progress of the WeWork partnership but declined to comment on the investment. A spokesperson for WeWork also declined to comment on the investment. WeWork is preparing to go public via a $9 billion blank-check merger in late October.

The companies cited the effects of the Covid-19 pandemic as a catalyst for their accord. For many businesses, the return to the office has been a stilted process. Widespread vaccines in the U.S. brought some workers back, but the return stalled, along with vaccination rates, and outbreaks of new variants played a role.

“The partnership we announced with Cushman & Wakefield in August is a testament to WeWork’s long-term value proposition and we remain incredibly excited about the opportunities that lie ahead as we team up with one of the leading real estate firms in the world,” WeWork said in a statement Sunday.

The deal represents a marriage of old real estate and new. Cushman & Wakefied is more than a century old and one of the largest commercial real estate services companies in the world. WeWork is barely a decade old.

©2021 Bloomberg L.P.

Adblock test (Why?)



Source link

Continue Reading

Trending