What’s Going On Here?

Tencent’s stock fell by the most in a decade on Tuesday, after murmurs grew that the gaming industry would be next to fall to China’s might.

What Does This Mean?

The Chinese government has been on the warpath in the last few months, barreling its way through the country’s tech, fintech, and for-profit education industries to name a few. So when a state-owned news outlet accused kids of spending too much time playing “electronic drugs” – video games – investors were suddenly nervous that gaming would be next. That encouraged them to sell off a host of the sector’s stocks: Tencent’s shares dropped by 6% on Tuesday, NetEase’s by 10%, and Japan’s Nexon – which makes about 30% of its revenue from China – by 7%.

Why Should I Care?

For markets: This bruise might not heal.
Tencent’s shares were down as much as 11% at one point, but China’s biggest public company did manage some damage control – namely by promising to limit the amount of time kids can spend playing its games. But Alibaba – which announced weaker-than-expected quarterly results on Tuesday – is proof that this might cause lasting problems: the ecommerce giant’s shares have now fallen 25% in the last six months. Still, it’s trying to put a positive spin on the situation, committing to buying back more of its shares this year and next.

For you personally: Stay safe out there.
You might be skittish about investing in China right now, so it’s just as well that Goldman Sachs published new analysis on which sectors to avoid and which to invest in. The investment bank suggested steering clear of those exposed to antitrust, capital markets, social equality, and data security, and gravitating more toward consumer staples, energy and utilities, and machinery and materials.

The Shaky Legal Vehicles That Could Bring Down The Chinese Stock Market

What’s Going On Here?

Chinese companies across the board have had a tough time of it lately.

And according to TS Lombard’s Oliver Brennan, US-listed Chinese companies are in just as vulnerable a position.

See, firms that struggle to get approval to list on the US stock market have for years used a special kind of corporate structure – known as a “VIE” – to avoid asking permission.

And even though it’s a workaround, the country’s largely been on board with VIEs. They bring a lot of foreign money into China, after all.

But if recent developments have proved anything, it’s that Chinese policymakers can change their minds in an instant. And if they do, investors might start ditching the country’s stocks in their droves.

So that’s today’s interview: Oliver Brennan on how VIEs work, why they’re so risky, and where the safer opportunities lie if you’re interested in China.

BluePrint

What’s Going On Here?

BP announced stronger-than-expected second-quarter earnings on Tuesday, and the British oil major laid out plans for dividends and buybacks that its rivals will be hoping to replicate.

What Does This Mean?

Oil prices have been on the up and up this year, meaning BP was able to sell what it extracted at a higher price last quarter – and in turn take home a higher-than-expected profit. It went one step further than US oil companies too, which have mostly been raising their dividends and reintroducing share buybacks: BP promised to buy back $1 billion worth of shares every quarter and up its annual dividend by 4% a year until 2025 (as long as oil’s price averages at least $60 a barrel). And never ones to thumb their noses at both certainty and cash returns, investors sent BP’s stock up 5%.

Why Should I Care?

For markets: Just to manage expectations…
Oil’s price is up around 40% this year, but investors looking for even more of a climb might be disappointed if JPMorgan Chase is to be believed. The firm’s private bank investment strategist thinks the price of the dusky nectar is fair in its current range of $70-75, and doesn’t reckon it’ll move much in the next year.

Zooming in: Mind the gap.
JPMorgan’s hot take suggests Europe’s oil stocks – up just 5% this year – are going to need to find some other way to close the gap on America’s majors, up around 35% (tweet this). One possibility is if Europe’s oil firms can put to bed investors’ environmental concerns, though not the ones you’d think. See, these companies have talked a big game about becoming greener, but they’ll have to spend bigger if they actually want to achieve those goals. And that, investors worry, could come at the expense of dividends, buybacks, and clearing debt. BP seemed to soothe its investors’ jitters on Tuesday, but European rivals Total and Shell have a pretty high bar to clear.

You might also like: Why now might be the perfect time to buy into oil companies.

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