AI wins create investor risks

Hi, this is Evelyn, writing to you from Beijing. Welcome to the latest edition of The China Connection — a snapshot of what I’m seeing and hearing from local businesses.

China’s tech advances may rile Washington and worry Wall Street about U.S. tech stocks. But when it comes to Chinese alternatives, foreign investors remain selective. Beijing’s recent moves reveal a reason why.

Just take a recently announced probe into Fang Xinghai, former vice chair of China’s securities regulator. Stanford-educated Fang, whose term coincided with the sudden suspension of Ant’s giant IPO, was particularly well-known among Wall Street investors in China — unlike many other targets of China’s anti-corruption investigations.

In the days since the probe into Fang was announced without much detail, discourse in China has focused on his support for algorithm-driven quantitative trading — which has frequently drawn public and regulatory ire for market losses, despite national AI champion DeepSeek emerging from quant hedge fund High-Flyer.

“This is exactly where communication can be better,” said Liqian Ren, a quantitative manager at U.S.-based fund manager WisdomTree.

“Right now for China the number one thing is tech competition,” she said, “not yet financial market competition.”

Parsing Fed statements on policy direction has been a key U.S. investment skill since the days of Alan Greenspan in the 1990s. UBS even said the Fed’s forward guidance, which is now under review, has decreased market volatility over the last two decades.

China, in contrast, only launched its stock markets just over three decades ago, and has not had a reputation for transparency. From a surprise yuan devaluation in 2015 to crackdowns in recent years on after-school tutoring and cross-border stock trading, many of Beijing’s policy moves appear abrupt to outsiders.

Market volatility isn’t due to quantitative trading, but sometimes “totally unexpected” policy information disclosure, Ren said, noting China’s market swings are “way higher” than in Europe or Japan — two overseas markets popular with U.S. investors.

Shares of Trip.com, whose top investors include BlackRock, plunged nearly 20% in one day in January after China said it was investigating the online booking company for alleged monopolistic practices.

Futu shares dropped by more than 27% on May 22 after China’s renewed crackdown on services that enabled people in mainland China to trade overseas stocks. UP Fintech shares fell by more than 25% that day.

More strikingly, just days after the SoftBank-backed Didi IPO in the U.S. in June 2021, the ride-hailing company faced a cybersecurity probe and app suspension in China, leading to a months-long stock decline and ultimately, delisting. Didi has yet to…