Analysis: Were we correct about China’s influencing of FTSE 100 stocks?

As the corporate calendar turned its annual page to 2016, FinanceFeeds reported that despite mainstream media coverage of the China stock market slowdowns and outages pointing toward economic difficulties, it is worth considering that China is conducting a ‘mergers & acquisitions’ campaign of overseas companies by intentionally affecting the price of their stock on free […]

No more regulatory passporting

As the corporate calendar turned its annual page to 2016, FinanceFeeds reported that despite mainstream media coverage of the China stock market slowdowns and outages pointing toward economic difficulties, it is worth considering that China is conducting a ‘mergers & acquisitions’ campaign of overseas companies by intentionally affecting the price of their stock on free market exchanges in order to buy them cheaply.

On the very first stock trading day of this year, £40 billion was wiped off the value of the stock of FTSE-listed companies, largely due to China’s stock market having shown very low performance.

FinanceFeeds pointed out that armchair pundits had been quick to present their perspectives on this matter, with many mainstream news sources having simply stated that factors in China and the Middle East are affecting European stocks.

Those market analysts who are simply copying and pasting from Bloomberg Terminal are missing the real source of such grave devaluations in stocks listed on the FTSE.

Today, further evidence that this could well be a correct analysis has emerged, as AngloAmerican, one of the companies whose stock has been most affected by this and whose stock collapsed in by 17.12 points on January 4 this year, 5.72% down from its closing price at the end of 2015, is now preparing to offload its entire Brazilian operations for $1 billion.

AngloAmerican is selling its Brazilian operations purely to aid its struggling balance sheet, and 85,000 jobs will be lost in the process, according to CEO Mark Cutifani.

The FTSE 100 is a benchmark exchange, and some of the world’s largest blue chip companies list their stocks on it, many of which have trade relationships with China.

Unlike in free market economies, China’s publicly listed companies whose stock is available on Chinese exchanges are subject to 50% mimimum ownership by the Chinese government, and the stock exchanges themselves are subject to substantial government ownership, and complete government regulation and operational guidelines in line with the Communist Party of China’s State Council’s conditions.

Quite simply, the difference between publicly traded stock of companies in free market economies compared to that of Chinese companies listed on Chinese venues is that in the free market, real economic, industrial and commercial factors dictate the price of the stock, whereas in China, the government effectively is the ‘company’ that owns controlling stakes in most listed firms, as well as the venues themselves.

Bearing this in mind, it is worth looking at China’s buying power as a collective entity which can easily affect values of free market-listed companies, then buy the stock on the open market via a Chinese government majority owned entity.
Today, it was reported that derivatives of companies listed on the FTSE 100 are worth £1.1 trillion, which is two thirds of the UK’s entire GDP, thus an attractive target for large entities that may wish to take majority stakes.

A very interesting matter may be to see who buys AngloAmerican’s Brazilian entity, and bearing in mind Brazil’s alignment with other emerging markets as well as China, as part of the BRICS economic group of countries, its natural resources, growing economy and sheer manpower, this could be a very attractive proposition for China.

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