The "tug-of-war" between the Chinese government and capital markets triggered this week's wild market swings — but investors can position themselves despite the uncertainty, said Cedric Chehab from Fitch Solutions.
"Corporate China is having to navigate a more demanding government and regulatory sector," Chehab, global head of country risk at Fitch Solutions, told CNBC on Thursday. "For investors, that proves a little bit more challenging cause you don't know which sector ... could come under greater scrutiny going forward."
Chinese markets have had a rollercoaster week after a series of regulatory announcements aimed at increasing oversight in sectors ranging from technology to education and food-delivery.
The crackdown spooked investors and sent Hong Kong's Hang Seng index plunging more than 8% in two days before rebounding on Wednesday and Thursday.
Still, there are three areas in the Chinese markets that investors can focus on that may have less volatility, Chehab told CNBC's "Capital Connection."
"Focus on those … companies and sectors that are leveraged to the economic recovery," he said, adding that they can give "some cover."
Next, investors can identify sectors that have come under less regulatory scrutiny by Beijing in the last few months or quarters, Chehab added.
Finally, look at sectors that have been largely identified by the Chinese government as "not particularly important from a national security perspective."
"You have a bit of a tug-of-war in terms of what the government wants and what capital markets want to do," Chehab said.
The recent market shake-up was initially triggered by a Bloomberg report last week that said Chinese regulators are planning heavy penalties for ride-hailing giant Didi that could include massive fines and a forced delisting.
Investor sentiment took a further hit in the next few days when regulators on Friday banned educational institutions from raising money through stock listings, among other things. The next day, China's antitrust regulator ordered Tencent to give up its exclusive music licensing rights and slapped a fine on the internet giant for anti-competitive behavior.
"What we're seeing is greater interventionist policy into these capital markets, whether it was with Alibaba which started several months ago, concerns around data privacy with Didi, and now the educational sector," Chehab said.
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July 30, 2021 at 08:45AM
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Investors can focus on 3 areas amid China's regulatory uncertainty, says Fitch Solutions - CNBC
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