SINGAPORE – According to consultancy firm Bain & Company, fears that Chinese companies will withdraw from US stock exchanges will ultimately benefit China.
This is because these companies would be looking to register in Hong Kong in order to gain access to international investors and attract funds to the market, suggested John Fildes, expert partner of Bain & Company.
The New York Stock Exchange (NYSE) is on the verge of delisting three Chinese telecommunications giants, after making two U-turns on the decision. On Thursday, he finally announced that he would remove U.S.-traded shares of China Telecom, China Mobile and China Unicom, citing an executive order signed by President Donald Trump banning U.S. investments in Chinese companies with suspected ties to the United States. Chinese army.
“If this happens, then without a doubt it will benefit the Hong Kong listings of these companies,” Fildes said, adding that there would be an “initial price drop” due to nervousness over whether investors Americans would come back to equities.
Hong Kong-listed shares of the three Chinese telecommunications companies plunged between 7% and 11% on Thursday after the NYSE announcement.
American flags in front of the New York Stock Exchange (NYSE) in New York, United States, Monday, January 4, 2021.
Michael Nagle | Bloomberg | Getty Images
Fildes also told CNBC’s “Street Signs Asia” that US law that requires foreign companies to comply with US auditing standards has caused many Chinese companies to look up listings elsewhere.
“But all of that benefits China because these companies are going to, you know, do a secondary listing in Hong Kong,” he said. “If they are delisted in the United States, international investors will be able to access these companies through their lists in Hong Kong.”
“ Extremely attractive ” Asian markets
It may not just be “roadblocks” in the United States that are driving companies to register in Asia, Fildes said. The markets of China and Hong Kong have become more attractive, although there is “a lot of capital” to be raised in the United States
“We are seeing the growth of the Star Market in Shanghai as well as the relaxation of certain rules around ChiNext in Shenzhen which make national announcements more attractive,” he said.
The Star Market and ChiNext are Nasdaq-style technology-focused boards that have relaxed regulations amid reforms to China’s financial markets.
Hong Kong is also “much more attractive” now, he said, noting that the exchange allows companies to list shares with weighted voting rights. This means that some shares confer more voting rights than others. Stock Exchanges in Asia introduced the system, which is practiced in the United States, to compete for initial public offerings.
“Hong Kong is definitely back with these new rules,” he added. “Shanghai and Shenzhen are also becoming more open and attractive to technology stocks.”
“Asian markets are extremely attractive and there is a lot of liquidity,” he said.
Investors turned to the stock markets in a low rate environment and the initial public offering activity in 2020 was “phenomenal” globally, Fildes said.
This momentum should continue this year. “We do not see, at the moment, any real reason for this not to continue in 2021,” he said.