1) How China is targeting Big Tech - FT
Content: China's State Administration of Market Regulation (SAMR) has recently spurred into action against Big Tech in the country. For instance, chat records from Alibaba's own communication platform was taken, and the regulators also interviewed the staff. These had rippling implications, impeding company operations and ultimately led to a fall in share prices by 18%. Other Big Tech firms were also affected, such as Meituan, whose share price dipped 5 per cent less than 8 weeks ago.
Why the sudden rise in regulations? Chinese tech companies have grown and benefitted from the coronavirus pandemic, because they provided essential services such as food delivery and online grocery platforms for the masses during lockdown. However, it was said that they didn't share their earnings with the delivery drivers, who were "overworked". The government also seems to be getting these companies to grow not just in terms of profits or customers, but also to "decouple" from the US and serve the society. However, the limitation is that the SAMR only has about 50 employees, so the process may be slow. However, it still acts as a good deterrence for the companies. Currently, company leaders are assuring investors about their growth potential and position with respect to the tighter regulations.
So what: With Jack Ma's case causing his company to lose billions, we can see that the Chinese government has significant power over companies. This is due to a strong culture of collectivism and the way business is done in the country - companies must work well with the government.
2) US stocks endure worst week in nearly four months - FT
Content: With the rate of vaccination picking up and other positive events like borders easing up, the likelihood of market recovery is becoming more probable - and with that, an expectation of future inflation. The Federal Reserve chair Jay Powell mentioned how the Fed expects interest rates to be raised in 2023, a year earlier than what was expected. Simply put, by raising interest rates, cost of borrowing is higher which depresses consumer and corporate spending, thereby lowering inflation levels as prices increase by a lower extent. So with this increase in interest rates earlier than expected, companies' earnings are then adversely affected, ultimately leading to a fall in stock prices.
Because of the expected increase in rates, investors are flocking to bonds as the Fed seem's to be willing to control inflation levels. Bond yields thus decreased with the increase in bond price, and the dollar appreciated. On the other hand, gold prices have fallen.
So what: The US market will probably improve in the near future, and this will ripple down to the individuals in terms of lower unemployment and higher per capita income.
