China-focused investment trusts have seen their share prices fall by as much as 9% after investors started to panic about increased regulatory interference from Beijing.

JPMorgan China Growth & Income (JCGI) was the worst faller among this group, followed by Baillie Gifford China Growth Trust (BGCG), Pacific Horizon Investment Trust (PHI) and Fidelity China Special Situations (FCSS).

Also caught up in the nervousness was Scottish Mortgage Investment Trust (SMT), down 1.5% as several of its biggest holdings are Chinese companies in the firing line of the regulators.

China has recently clamped down on several tech firms for anti-monopoly actions, including a $2.8 billion fine on Alibaba in April. Last year, fintech group Ant Financial had its stock market listing blocked by the regulators until it complied with new capital requirements and make other changes.

More recently, China’s cyber security regulator ordered Didi to be taken off domestic app stores days after the ride-hailing group raised $4.4 billion in the biggest Chinese listing in the US since Alibaba in 2014.

Rumours then spread that major changes were coming to the private education industry, banning companies that teach school curriculum subjects from making profits, raising capital or listing on stock exchanges worldwide. That would deter foreign investment and has already seen share prices collapse in related companies such as TAL Education and Gaotu Techedu.

Scottish Mortgage is a big investor in Tencent whose WeChat social network has temporarily stopped new users from signing up, giving it time to upgrade its system to meet new laws and regulations. Tencent’s share price has fallen by 18% in the past five days.

Investors have been attracted to China in recent years for its growing number of companies offering fast earnings growth.

Global holdings of Chinese stocks and bonds have increased by approximately 40% to more than $800 billion over the past year according to the Financial Times.

Investors may now be reappraising their exposure to the country for fear of further regulatory interference. This could have a knock-on effect to emerging markets-focused funds and investment trusts, many of whom have a large weighting to China.

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Issue Date: 27 Jul 2021