Chinese bargain hunters cram stocks blacklisted by Trump



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SHANGHAI (Reuters) – As U.S. investors shed stocks of Chinese companies blacklisted by outgoing President Donald Trump, bargain hunters in China are taking the opposite side of this trade, betting a Joe presidency Biden will reverse the investment ban.

FILE PHOTO: A logo of Semiconductor Manufacturing International Corporation (SMIC) is seen at China International Semiconductor Expo (IC China 2020) in Shanghai, China October 14, 2020. REUTERS / Aly Song

Trump signed an executive order on Nov. 12 that bans U.S. investments in securities in Chinese companies that are believed to be owned or controlled by the Chinese military.

The outgoing US president plans to expand this blacklist of 35 companies to include Alibaba and Tencent.

As U.S. investors rush to sell shares in sanctioned companies and their subsidiaries before the executive order takes effect on Jan.11, Chinese investors are storming in.

Since the order was announced, mainland Chinese holdings in the Hong Kong-listed shares of China Railway Construction Corp (CRCC) and CNOOC Ltd via China-Hong Kong Connect have roughly tripled, according to the operator of the Hong Kong Exchanges and Clearing Ltd.

Other blacklisted stocks, including railway equipment maker CRRC Corp, China Communications Construction Co and semiconductor giant SMIC, also saw large inflows.

Zhu Haifeng, a veteran Chinese investor, said he was looking for bargains in CNOOC and CRRC, both of which had lost up to 27% since the Trump order.

“These are globally competitive companies, and these are China’s ‘calling cards’,” said Zhu, who sees the limited impact of US sanctions on business fundamentals.

Wan Chengshui, portfolio manager at Hangzhou-based Golden Eagle Fund Management Co, said he plans to increase his holdings in Tencent if prices fall further.

“Trump politicized everything in the name of national security. When Biden takes office, I think things will improve, ”Wan said, predicting that Trump’s executive order will be rescinded and sanctions against Tencent and Alibaba will not materialize.

Wan is not alone.

When Tencent fell nearly 5% in Hong Kong following the announcement of a possible blacklist on Thursday, Chinese investors invested 4.6 billion Hong Kong dollars net (593.29 million dollars) in its stock through a cross-border trading channel, making it the most traded stock under the regime on that day.

Global index publishers MSCI, FTSE Russell and S&P Dow Jones Index have all worked to blacklist stocks from their global benchmarks, forcing passive investors to get rid of those holdings.

Phillip Wool, head of investment solutions at Rayliant Global Advisors, said investors could find bargains as active investors ditch their stocks for the top passive exits.

“Non-US investors will watch the prices of these stocks go down and at some point decide this is a buying opportunity,” Wool said.

Meanwhile, uncertainty remains around the scope and implications of Trump’s decree, while the gradual expansion of the list is another guessing game, Wool said.

Therefore, “there is also a potential opportunity for active investors to get ahead of the rest of the market as to how the political situation is going to unfold.”

After turning around twice this month on the matter, the New York Stock Exchange announced on Wednesday that it would be pulling three Chinese telecommunications companies.

Since NYSE’s first delisting announcement on Jan. 1, Chinese investors have been outright buyers. Mainland holdings under Connect in China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd, jumped 37%, 28% and 41%, respectively.

(1 USD = 7.7534 Hong Kong dollars)

Reporting by Samuel Shen and Andrew Galbraith; Edited by Vidya Ranganathan and Kim Coghill

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