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China’s War Against Fintech Opens Up New Opportunities

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Tue, Mar 23, 2021 11:31 AM

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China’s new regulations could provide a new strength for the U.S. and other countries around th

China’s new regulations could provide a new strength for the U.S. and other countries around the globe. [Eric Fry's Smart Money] Brought to you by INVESTORPLACE China's War Against Fintech Opens Up New Opportunities [Eric Fry] Eric Fry In November 2019, I recommended the South African holding company Prosus NV (PROSY) as a compelling one-stop play for investing in early-stage consumer technology companies around the globe. It owns about 30.1% of Chinese internet giant Tencent Holdings Ltd. (TCEHY), as well as more than 70 venture capital-style investments. At the time I said: Prosus offers a compelling one-stop play for investing in early-stage consumer technology companies around the globe. It is like a private equity fund that is open to everyone – not just well-heeled institutions and individuals… While Tencent will wield the greatest influence over Prosus' near-term investment results, as time goes on, the other investments in its portfolio are likely to produce meaningful success. And who knows: Maybe another Tencent is hiding somewhere in the Prosus portfolio! Prosus shares had performed quite well for members of [Fry's Investment Report](. They still trade at a significant discount to the value of its 30.9% holding in Tencent. That investment is worth $244 billion, yet Prosus' market value is just $177 billion, which means the stock is selling for a 30% discount to the value of its Tencent investment. [Here's the Stock Symbol of Eric Fry's Next 500% Winner]( Additionally, the Prosus portfolio holds $5 billion in cash (along with interests in those more than 70 early-stage e-commerce companies). This substantial asset value argued for maintaining an investment in Prosus. However, on Friday, I recommended my members sell their shares for a solid 57.4% gain. Despite the company's long-term growth potential, and its considerable underlying asset value, recent heavy-handed maneuvers by the Chinese government have heightened the risk of owning certain China-related stocks like Prosus. So in today's Smart Money, let's take a look at China's recent actions… and why they're an argument against holding Chinese stocks. China's War Against Itself The Chinese government has initiated a new "war" against large, successful conglomerates like Tencent. As Bloomberg News put it recently: Pony Ma's Tencent… has been put on notice. Asia's largest conglomerate was censured by China's antitrust watchdog on [March 12]… A progression of rules unveiled in the past six months has taken aim at the dominions built by China's most successful online entrepreneurs. The first blows fell on Jack Ma when Ant [Group]'s $35 billion initial public offering was torpedoed at the last minute, followed by an antitrust probe into Alibaba Group Holding Ltd. (BABA)… [P]roposed rules to break up market concentration in digital payments and rein in consumer lending online will damage prospects for Tencent's WeChat Pay and its wider fintech business. We do not yet know what tactics the Chinese government might use to clip Tencent's wings. Nor do we know how severely new regulations might harm Tencent's growth prospects. We only know that the Chinese government has embarked on a new "anti-monopolist" campaign, and that Tencent, fintech company Ant, and Alibaba have become key targets of that campaign. [Watch Out, China: America Is Striking Back]( Whatever the precise outcomes of the Chinese's government's meddling, they will probably not be shareholder friendly. Furthermore, heavy-handed governmental intrusions into private enterprises have the potential to upset investor confidence and shift investor sentiment from positive to negative. Therefore, I recommended standing aside for now. This isn't the first time the Chinese companies I follow have been hit by headline risk in the past couple of years. Last August, besides for certain exceptions like Prosus, I recommended a complete exit from all China-based positions. Here's what I said at the time: With each passing day, new headlines cross the wires about rising hostilities between the United States and China… or about Chinese stocks getting the boot from U.S. stock exchanges… And let's not forget the ongoing barrage of headlines about Huawei, the powerhouse Chinese telecom company. The United States and other Western nations accuse Huawei of… conducting espionage of various sorts on behalf of the Chinese government… The barrage of bad headlines is creating a stiff headwind for Chinese stocks, while also raising the odds of a "Black Swan" event that puts severe downward pressure on them. So we took our profits and redeployed them in a new trend I've been examining intensely. I've been calling it, "Made in America… Or at Least NOT Made in China." For simplicity, you could shorten this idea to just NMIC – Not Made in China… The NMIC Megatrend To be clear, I have not been examining this new trend because of any personal political agenda or motive. I have been examining it for the identical reason I research any powerful new trend: A profit motive. Relations between the United States and China have become so disharmonious that this new X factor is affecting the investment calculus for numerous industries and companies. One prominent example would be the telecom industry, where Chinese company Huawei has become persona non grata in the U.S. and many other countries. In effect, Huawei is banned from expanding its global footprint throughout much of the world. Its prospective market-share losses will become someone else's market-share gains. In the market for 5G hardware, for example, European and American telecom companies like Nokia Corp. (NOK) are starting to gain market share at Huawei's expense. [Eric Fry: Sell These 25 Stocks Now]( Similar announcements are echoing around the world. Huawei is out… and Nokia and others are in. "Made in China" is becoming both a political and supply-chain risk for numerous companies in the U.S. and elsewhere. From the standpoint of procurement or supply-chain managers, China has become a "why bother?" situation. In other words, a growing number of Western companies are moving to eliminate or reduce Chinese production from their supply chains, if they can do so responsibly and cost-effectively. A shift to "Made in America" would be the optimal outcome for many of these companies, but the first order of business is simply to establish production that is "Not Made in China." I recently put together a [free presentation]( that lays out this phenomenon in even greater detail. I also released a new special report in which I detail [several profit opportunities]( investors can use to benefit massively from the NMIC megatrend. In short, I explain how you can do well by doing good. You can build wealth by investing in the very industries and initiatives that are most critical to our national security and prosperity. [Just go here]( to view that free presentation. Regards, [Signed:] Eric Fry [P.S. The Huge Story for 2021 You Aren't Hearing About…]( An [alarming new trend]( is taking shape in America… One that's making a lot of elites really wealthy… and at the same time making others poorer. If you haven't seen this or heard about what's happening in your hometown, [I strongly encourage you to watch this](. NOTE: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article. To prevent this email newsletter from getting swept up by an overzealous filter, please add our "From" address (EricFry@exct.InvestorPlace.com) to your address book. Comments? Send us an email to [feedback@investorplace.com](mailto:feedback@investorplace.com?SUBJECT=Feedback). MANAGE YOUR ACCOUNT We hope this timely investing advice is valuable to you. If your email address has changed please email us at feedback@investorplace.com. To manage your email preferences, go [here]( We will honor your request within 7-10 days. Copyright © 2021 InvestorPlace.com Presented by InvestorPlace Media, LLC 1125 N. Charles St, Baltimore, MD 21201 [InvestorPlace]

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