One of India’s top funds avoids Chinese stocks entirely, and its CIO, Rajeev Thakkar, says the reason is buried in legal gray zones and investor blind spots.
In a podcast with Moneycontrol, Thakkar laid out why the fund steers clear of popular Chinese tech giants like Alibaba and Baidu—despite their surface similarities to U.S. counterparts like Amazon and Google.
“If you buy Amazon, why would you not buy Alibaba, which arguably is the Amazon of China? Or if you buy Google, why not Baidu?” Thakkar asked. “The first thing not too many people know is that as per Chinese law, it is illegal for foreigners to invest in these sectors.”
Instead, investors typically buy into offshore shell companies, often incorporated in the Cayman Islands. These entities don’t own the actual Chinese operations. “All they have is a side agreement with the operating companies in China saying economic benefits will be given to this shell company,” he said. “The legality of which is completely untested.”
Thakkar pointed to the Alipay-Alibaba saga as a red flag. “Yahoo owned something like 30% of Alibaba. Alibaba spun off Alipay—and Yahoo was not even aware of it,” he said. “It was spun off for free, without giving any value to the ADR holders.”
He also referenced the political risks unique to China’s system. “Jack Ma, who would be the Jeff Bezos of China, made some statement and was in hiding for such a long time,” Thakkar said. “They have this concept of common prosperity, which necessarily is not capitalism.”
His conclusion was blunt: “It’s not easy to make money investing in Chinese stocks.”
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