Beijing’s latest moves to clamp down on various sectors of the Chinese economy are scaring some investors, and one short seller thinks it’s just the start.

“I know the bulls meant, ‘It will be just education stocks,’ then it was the crackdown on gambling,” short seller Dan David told Yahoo Finance Live (video above).

In recent months, the Chinese government of President Xi Jinping has started to tighten regulations in various industries such as gaming – both in terms of casinos and children playing video games – in addition to Big Tech in the country and even the culture of celebrities.

“We are really not even at the start of the crackdown,” added the founder and IT director of Wolfpack Research. “China is returning to a policy of total control. “

Chinese President Xi Jinping leaves APEC Haus during the APEC summit in Port Moresby, Papua New Guinea, November 18, 2018. REUTERS / David Gray

Part of Xi’s goal is to tackle wealth inequality in China: There were 626 billionaires in China last year, up from 724 in the United States, according to Forbes. In contrast, Chinese Premier Li Keqiang said there were 600 million people in China earning a monthly income of just 1,000 yuan – about $ 155 or so – at a press conference in 2020.

State messages indicate that the Chinese Communist Party (CCP) is pursuing the concept of “common prosperity” to close the wealth gap.

“We will adhere to the status of the pillar of the people and the direction of common prosperity, and always practice development for the people, development by the people and sharing of the fruits of development by the people,” the CPC’s latest five-year plan . declared. “We will protect the fundamental interests of the people, inspire everyone’s enthusiasm, initiative and creativity, promote the well-being of the people, and permanently realize people’s aspirations for a good life (美好 生活).”

From a foreign investor’s perspective, according to David, these developments have made holding Chinese stocks “very dangerous” for US investors. He also pointed out that with large mutual funds like BlackRock, Vanguard, Fidelity still exposed to Chinese companies, this would put investors “at great risk”.

‘They have missed what is happening in china ‘

Some pundits and investors remain optimistic about the outlook for foreign companies in China, at least for now.

Oliver Chen of Cowen Research told Yahoo Finance Live that he was “optimistic about luxury goods” in the United States as well as in China.

“Consumption has changed in China, where it is more inside China, rather than traveling,” Chen said. “The luxury market is very robust, because the rich have benefited from the appreciation of the stock market, the appreciation of real estate.” Chen added that he’s seen a lot of momentum for businesses that target the middle class, such as Coach and Tapestry.

Chen also acknowledged the possible headwinds for foreign companies in China, especially for brands aimed at the ultra-rich. For example, even though Louis Vuitton has an “exceptional presence” in China, Xi’s desire to achieve “common prosperity” and “egalitarian nature in China” could pose a great risk to the luxury sector, Chen said. .

HONG KONG, CHINA - 2021/08/07: A woman holding a Valentino branded shopping bag as she uses a smartphone outside the Italian luxury fashion brand, the Fendi store seen in Hong Kong.  (Photo by Budrul Chukrut / SOPA Images / LightRocket via Getty Images)

A woman holding a Valentino branded shopping bag as she uses a smartphone outside the Italian luxury fashion brand, the Fendi store seen in Hong Kong. (Photo by Budrul Chukrut / SOPA Images / LightRocket via Getty Images)

Bridgewater co-chief investment officer Ray Dalio also pleaded for investing in China despite the crackdown.

“I have discovered that most Western observers (…) interpret movements like these recent two as the leaders of the Communist Party showing their true anti-capitalist stripes, even though the trend over the past 40 years has clearly been so strong towards the development of a market economy with capital markets, with entrepreneurs and capitalists getting rich, ”Dalio wrote in a LinkedIn post on July 30, referring to the crackdown in the ridesharing and ride-sharing industries. education.

“As a result, they’ve missed out on what’s going on in China and will likely continue to miss,” the billionaire hedge fund manager added. “I urge you not to misinterpret these kinds of movements as a reversal of trends that have been around for decades and not to let it scare you.”

At the same time, no one outside the CCP really knows what will come next.

“While US regulators focus primarily on four big tech companies, the Chinese government targets dozens of them and has the centralized power to act faster and more aggressively than the United States,” DataTrek’s Jessica Rabe wrote in a commentary. recent note. “This nuance makes it more difficult for investors to navigate in the current environment, especially as Chinese regulators are keeping a low profile on everything they have planned.”

Aarthi is a reporter for Yahoo Finance. She can be contacted at [email protected] Follow her on Twitter @aarthiswami.

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