The Nationalism Factor, and a Forced Asset Sale

By Doug Young & Rene Vanguestaine

Nationalism: A fleeting catalyst

Nationalism and geopolitics are increasingly shaping the investment landscape in China, as recent events are showing. The remarkable box office success of “Ne Zha 2” is more than just a cinematic triumph — it’s a manifestation of national pride that has spurred significant market movements. The film’s domestic performance, with revenues approaching $2 billion and widespread repeated viewings, even leading to theaters being entirely rented out by wealthy businessmen for free mass screenings, has been a key factor in the near tripling for the stock of its producer, Enlight Media. While such enthusiasm can drive short-term gains, it’s important to recognize that investing purely on the basis of patriotic sentiment is inherently risky and unsustainable over the long term.

Reflecting on past market dynamics, we can recall the case of sportswear maker Li Ning, whose shares suffered after its products were perceived as looking too Japanese. This episode serves as a reminder that the same nationalistic fervor which boosts some stocks can just as quickly penalize others. The inherent unpredictability of public sentiment means that no investor can reliably forecast which companies might later become embroiled in controversy. Consumer brands may be particularly vulnerable, while companies in sectors like technology or enterprise software might not face the same exposure, illustrating the uneven impact of nationalism across different industries.

Geopolitics and the new era of forced asset sales

On the global stage, the interplay between national security concerns and market dynamics is starkly apparent in a major recent asset sale in the Panama Canal. Following U.S. political pressure and threats to reclaim control of this strategic waterway, Hong Kong-based CK Hutchinson Holdings sold two key port facilities to BlackRock for $22.8 billion. This deal, influenced by heightened U.S.-China tensions, underscores a broader trend where geopolitics forces significant asset transactions. Similar scenarios, such as potential pressures on ByteDance to divest its U.S. operations for TikTok, suggest that forced asset sales may increasingly become the norm in an environment marked by national security concerns and reciprocal market restrictions.

Looking ahead, while the U.S. has actively pressured the sale of sensitive assets, the situation in China appears markedly different. With longstanding policies that restrict foreign companies in key areas — exemplified by the absence of platforms like Facebook and Google — the scope for similar moves by China is inherently limited. Nonetheless, the issue of reciprocity remains complex. As U.S. companies face restrictions in China, the possibility of reciprocal measures cannot be entirely ruled out, although such scenarios would likely target very specific sectors.

In conclusion, the current climate demonstrates that while nationalism can temporarily boost market sentiment and drive asset reconfigurations, it remains an unpredictable factor that investors should approach with caution. Short-term enthusiasm, fueled by patriotic fervor, may not translate into sustainable long-term value. Investors would do well to balance these sentiments against fundamental business metrics, recognizing that both nationalism and geopolitical pressures can shift as rapidly as market conditions themselves.

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China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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