What's up guys and welcome back to wall street millennial on this channel, we talk about everything related to stocks and investing recently. One of the biggest stories in the investing community is the recent developments in the market for chinese stocks. First, there is dd the chinese ride-hailing app that ipo'd on the new york stock exchange last june, that ipo raised 4.4 billion dollars, valuing the company at 70 billion dollars total less than a month later. Chinese regulators slapped heavy sanctions on the company for data privacy violations.

They banned the company from signing on new users and fined the company 77 000. It was a huge deal at the time because it marked a new high for china's regulatory actions on their own tech companies. A deity plunging more than 10 percent on reports that china could be considering an even harsher crackdown on the ride-hailing stock. Deidre bosa joins us with all the details: devo well melissa.

If you thought that earlier crackdowns on ant group and alibaba, you thought those were bad. The damage to deity could end up being far worse. Bloomberg is now reporting that chinese regulators are considering a slew of quote serious and unprecedented penalties from a massive fine to a forced listing or even a state-owned investor. Now that, of course, would come on top of the pain that has already been inflicted, namely its app has been removed from chinese app stores.

It's been prohibited from signing up new users, its offices, rated and, of course, there's those tens of billions of dollars that have been wiped off its market cap in just a matter of weeks, then, even more recently, chinese regulators announced that private for-profit education companies within the Country would have to shut down as for-profit institutions. Chinese corporate giants, like tao education in new oriental, were impacted, the most losing the majority of their market values in only a matter of days, a move lower in chinese stocks. You mentioned it earlier, but you got to keep your eyes on what's happening here, because chinese media reporting a crackdown on education technology by the chinese government. They would ban foreign capital from buying stakes and chinese tutoring institutions and ban such institutions from from public listings.

Now you may say to yourself what is the connection here yeah, i'm still saying that i know i know the ed tech market in china has been a very hot play in recent years, with 10 billion dollars in venture capital money pouring into the sector. In the last year alone and alibaba, tencent and bite dance are among the companies that have entered that sector uh. Here in the states, we are seeing uh pressure on names in the education sector. These two developments within the span of just a month have led to a lot of fear surrounding the chinese economic environment.

People are starting to wonder whether chinese companies, which are at risk of facing extreme sanctions from the government, are still investable at all. To that end. Billionaire hedge fund manager, ray dalio, recently published an article on his thoughts on the state of china from the perspective of an investor ray dalio is one of the most successful investors in history. He founded bridgewater associates almost 50 years ago, which has been the largest true hedge fund for the past 20 years.

His primary investment style is macro investing with this strategy. He studies the history and economics of countries and uses what he's learned from history to predict broad market phenomena, because this style of investing invests in whole economies, currencies asset classes and so forth, as opposed to individual stocks. It's able to support much larger assets under management than traditional longshore hedge funds as part of his investing career. He has lived in china for an extended period of time and dealt heavily with chinese businesses in his latest article.

He offers his thoughts on what he thinks is really going on in china right now, if you're interested in his thoughts, it's probably a good idea to read the entire article yourself. The link is in the description below the first thing. He says in the article is that he thinks that western observers who do not directly deal with chinese policymakers and who do not follow china's historical changes in detail, have got the wrong idea about their government. Specifically, he points out the communist party's usage of capital markets, which he says most people misunderstand he's long said that he believes that western investors, misconceptions about china, has led to many investors missing out on the economic developments in the country over the past 40 years.

With the latest developments with dd and the education companies, he thinks the same thing is happening. The way he sees china's crackdown on didi is that, as a way for the chinese government to reign in the political power of financially successful companies. The way he sees the crackdown on the education companies is as a way to reduce educational inequality. Education is something that's very culturally important in china and seen as a way to promote equal opportunity and prosperity for their working classes.

Also, the for-profit education system is seen by the chinese government as putting undue financial burdens on poor families. Making high-quality education only accessible with money makes it impossible for many families to access education and thus opportunity for future wealth. By banning the for-profit education companies dalio thinks that the government is acting its own belief that these are things that are ultimately better for the country, despite short-term pain in the stock market. He goes on to talk about instances in the past few decades, when western observers have misinterpreted the chinese government's approach to capitalism.

For example, in 2015, the people's bank of china decided to allow the chinese currency to move in a band around a certain level. Up to three percent each day, this range was an increase from two percent, and many market observers considered a risky move that could bring depreciation and volatility to the chinese currency. Theoretically, a wider trading ban shouldn't be good or bad for a currency, but historically it had led to depreciation for the chinese yuan in particular. This depreciation means a tougher business environment, especially for foreign companies, if a foreign company's profits are earned in the chinese currency.

After converting it back to us dollars or whatever the company's home currency is those profits are eroded. However, the long-term effects of widening the trading ban leads to a stronger export market for china. It allows the chinese yuan to deviate from its peg to the us dollar, which had been appreciating significantly at the time. Ultimately, the move was a painful step towards a longer term economic goal.

People thought that this meant the chinese government was moving against its own capital markets according to dalio. This type of thing has happened many times in history in capitalist economies, and fiscal and monetary interventions in the us have far exceeded the chinese interventions in terms of scale. Over the past 40 years, the chinese government has largely been successful at managing the consequences of their economic goals. The result has been astonishingly, fast, economic development from a starving population to the second biggest economy in the world.

In just 40 years, ray dalio says that this is the result of their encouragement of capital markets and entrepreneurship, a trend that is more powerful than any individual events. He considers china to be a state capitalist system. That means that they have capitalism, but only so far as it serves the interests of the people. They want their entrepreneurs to build great companies in profitable businesses and to become rich themselves.

What they don't want is for successful businesses and business people to gain the power to stand in the way of the government's agenda. In other words, they won't allow the beneficiaries of their state capitalism to decide how the country is run in the end. Ray dalio thinks that one of the biggest problems from the developments with dd and the education companies is that the chinese government has not explicitly spelled out their true intentions with the regulations. But ultimately, he sees these developments as just bumps in the road dwarfed by much larger trends in which china values, capitalism and the economic success that has brought for them over the past several decades.

He believes that, although there are significant risks for investors in china, there are also great opportunities and risks also exist in the american markets. He thinks that both markets will compete with each other and likely be a good hedge for each other, and thus both should be part of a good portfolio. Ultimately, his positive view on china has not changed alright, guys that wraps it up for this video. If you enjoyed this content, make sure to hit the like button and subscribe, so you don't miss future videos.

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