WeeklyWatch – Didi crackdown marks rough ride for Chinese stocks

13 July 2021

Stock Take

Taxi ban drives down Chinese stocks

Ride-hailing apps have had a love-hate relationship with local authorities. Uber, for one, has faced various protests and bans across Europe.

The latest taxi app to hit the headlines is Didi – last week, Chinese authorities ordered its removal from mobile app stores in the country over data concerns. The app, which had recently listed in the US, immediately saw its shares drop – but it took Chinese tech stocks down with it!

In recent months, Chinese authorities have signalled a strong will to crack down on fast-growing tech companies – Alibaba being another notable recent casualty.

Delta and doubts

It wasn’t just Chinese tech markets that struggled midweek. The threat of the Delta COVID-19 variant to the health of supply chains caused a dip in global markets, while concerns about the pace of the global recovery from COVID-19 also weighed heavily.

On Wednesday, minutes from a recent Federal Open Market Committee meeting revealed a division over the future US policy, and anxieties over growing pricing pressure. On the same day, the Chinese government said it would cut the reserve ratio for banks to keep money flowing around the economy. Is this a warning sign that the Chinese Q2 GDP data might not reach market expectations? Some experts certainly thought so.

As a result, investors, economists and central banks began to take a slightly more pessimistic view on the pace of recovery – and Thursday saw markets fall across Europe, America and Asia.

UK recovery hopes dampened

Adding to market turbulence was the UK’s economic data for May, which revealed a growth of 0.8% – still 3.1% below its pre-pandemic peak. This came despite the month seeing indoor hospitality continuing to open up in May. Explaining these GDP figures, Paul Dales, Chief UK Economist at Capital Economics, noted:

“The optimistic slant is that it was due to the unusually wet weather. The pessimistic take is that it could be an early sign that materials and labour shortages are restraining output.”

Looking ahead, Dales added:

“Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level. But we hadn’t expected it to slow so much so soon. As such, whereas we previously thought that GDP would return to its pre-crisis peak in August, October now looks a better bet.”

Ending the week on a high

There was a more positive end to the week, however, with markets recovering some lost ground on Friday.

Markets performed somewhat better – the STOXX Europe 600, which fell 1.7% on Thursday, recovered 1.3% by the end of the day, meaning it actually finished the week slightly up. There was a similar story in the UK, where the FTSE 100 Index’s fall on Thursday was followed by a 1.18% gain on Friday (it still ended the week slightly down, however). US markets followed a similar trend, falling on Thursday, but recovering some of these losses on Friday.

Cautious freedom

Yesterday (12 July), UK Prime Minister Boris Johnson confirmed that many of the remaining lockdown measures will end on 19 July. However, the rhetoric surrounding ‘Freedom Day’ has shifted since the roadmap was first announced, with caution being urged. The PM told the Downing Street press conference:

“It is absolutely vital that we proceed now with caution, and I cannot say this powerfully or emphatically enough: this pandemic is not over.”

Wealth Check

The UK’s growing ‘COVID bill’ has been a prime topic for discussion throughout the pandemic – specifically, how we’re going to pay for it. One option that appeared to be firmly on the table was a one-off ‘wealth tax’, following a report by the Wealth Tax Commission last December. The findings of that report were that a one-off 5% levy on assets over £500,000 could raise £260 billion for the public purse over five years, therefore helping to pay for the economic damage inflicted by the pandemic.

However, with positive signs about the economic recovery, and the upcoming relaxation of restrictions on 19 July, talk about this so-called ‘wealth tax’ appears to have tapered off recently.

That said, other methods of recouping the costs of COVID could still impact savers, so it’s important to act now to mitigate any potential effects. This could include a wide-ranging review of capital taxation in general, taking into account taxes such as Capital Gains Tax (CGT) and Inheritance Tax (IHT). The Office of Tax Simplification recently provided a report in which it recommended changes to CGT (although the government has not yet committed to making changes).

Tony Wickenden, Technical Business Development Director at St. James’s Place, suggests:

“Given that no substantial changes to either IHT or CGT have been made so far (freezing thresholds and exemptions aside), this is a space most definitely to be watched.”

Whether this speculation over a tax review is proven to be correct or not, it’s wise to take full advantage of the tax reliefs on offer. What’s more, this uncertainty over ‘what might happen’ further underlines the importance of financial advice, and the peace of mind a long-term plan brings.

Speak with your Wellesley adviser to ensure that you are making the most of the reliefs available, and are protected in the case of any potential government announcements.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

“What they have to know is none of them are on their own. We win and lose as a team”

– England manager Gareth Southgate defends his team after a disappointing loss to Italy in the final of the European Championship over the weekend.

The information contained is correct as at the date of the article.

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