"Due to Regulations".... Masayoshi Son Rejects Investment in China

Chairman Son Jeong-ui Declares Suspension of New Tech Investments Amid China Big Tech Regulation Risks
Vision Fund Reduces China Investment Share from 23% to 11%... Q2 Net Profit Drops 39.4%
90% of China Bond Funds Show Recent Poor Returns... Non-Emerging Market Funds Also Impacted

Masayoshi Son, Chairman of SoftBank

[Asia Economy Reporters Byunghee Park and Yujin Cho] China's market regulations are causing widespread ripple effects in the global financial markets. Masayoshi Son, chairman of SoftBank Group, has declared a suspension of investments in China for the time being, citing uncertainties due to regulations. The Wall Street Journal (WSJ) reported on the 10th (local time) that 90% of bond funds with high exposure to Chinese investments have recently recorded returns below market performance.

Masayoshi Son, chairman of SoftBank Group, announced that he will halt new investments until the regulatory uncertainties imposed by Chinese authorities on technology companies are resolved. At the announcement of the second-quarter earnings, Son stated, "The regulations by Chinese authorities have become unpredictable and extensive," adding, "We plan to withhold investments in China until the regulatory risks become clear." He also said, "China remains a hub of innovation in technology and artificial intelligence, but the risks in terms of investment are significant."

Son revealed that SoftBank has reduced its China investment ratio, which accounts for 23% of the entire Vision Fund under SoftBank, to 11% in the second quarter of this year. SoftBank is a major investor in Chinese tech giants such as Alibaba (24.85%), China's largest e-commerce giant, Didi Chuxing (20.1%), the largest ride-sharing company in China, and ByteDance, the parent company of TikTok.

SoftBank announced that its consolidated net profit for the second quarter (April to June) was 761.5 billion yen (approximately 8 trillion KRW), a 39.4% decrease compared to the same period last year (1.2557 trillion yen). During the same period, revenue increased by 15.6% year-on-year to 1.4791 trillion yen.

[Photo by Reuters Yonhap News]

The WSJ analyzed that the high-intensity regulations by Chinese authorities are also significantly impacting the global bond market. In the past, the impact of negative news from China was limited to emerging market bonds. However, recently, bond funds primarily investing in Europe and the United States have also increased their exposure to China. This is because the size of the Chinese market has grown, leading to a higher allocation.

In March of this year, Chinese government bonds were included in the FTSE Russell index. As a result, Chinese government bonds are now included in all three major global bond benchmark indices: Bloomberg Barclays Global Aggregate Bond Index (BBGA), JP Morgan Global Emerging Markets Bond Index (GBI-EM), and FTSE Russell, leading bond funds to continue increasing their holdings of Chinese bonds.

Global low interest rates are also a factor behind the increased allocation to Chinese bonds. Since Chinese bond yields are relatively high, managers can achieve higher returns.

According to Citigroup, the yield on Chinese technology company corporate bonds is about 0.9 percentage points higher than that of U.S. investment-grade corporate bonds.

Analysis of Morningstar data by WSJ confirmed that bond funds investing in Chinese corporate bonds have underperformed the market returns over the past month. In particular, 90% of bond funds that are non-emerging market bonds but have a high proportion of Chinese corporate bonds have underperformed the market returns.

Fidelity's Enhanced Reserve Fund invests about 20%, or $600 million, of its total $3 billion in assets under management in Chinese corporate bonds. The Enhanced Reserve Fund's return was 1.77 percentage points lower than the benchmark index return over the past month.

The size of China's onshore bond market is about $15 trillion, making it the second largest in the world after the United States. Currently, the size of corporate bonds issued by Chinese companies is about $6.55 trillion. Among these, bonds issued in foreign currencies such as the dollar amount to $752 million.

This content was produced with the assistance of AI translation services.