[ad_1]
On Wednesday, the House of Representatives unanimously passed a bill that paves the way for Chinese companies such as Alibaba Group Holding and JD.com to be delisted from U.S. stock exchanges if they fail to comply with U.S. trading rules. monitoring audits within three years. Of the China-related measures introduced in recent months, the bill could have the broadest impact on investor portfolios – although the logistics of implementing the measures likely mean the fallout will not be sudden or sudden. as drastic as it sounds.
With the House vote, the Foreign Corporate Liability Bill is passed to President Donald Trump, who is expected to sign the measure. The Senate has already passed the bill over the summer, and the Securities and Exchange Commission is seeking comment on a similar delisting proposal this month.
Actions of
KraneShares CSI China Internet ETF
(ticker: KWEB), which has several Chinese stocks listed in the US among its top holdings, fell 0.51% after-hours to $ 73.80. Actions of
JD.com
(JD), which closed down 1% at $ 84.38, and
Ali Baba
(BABA), which closed down 1% at $ 261.32, slid again after hours.
The delisting surge comes amid a series of measures targeting China as the relationship between the two countries undergoes a reset. But this bill addresses long-standing issues around disclosure, transparency and accountability, including limits on foreign oversight of its companies.
Investors grapple with heightened regulatory and geopolitical risks, as strategists recommend allocating more to China as its economy advances in its recovery from the pandemic. the
iShares MSCI China
Exchange-Traded Fund (MCHI) up nearly double
S&P 500
since the start of the year, and 36 Chinese companies have gone public this year in the United States, according to Renaissance Capital, up from 25 a year earlier. Taking a selective approach and taking the risks into account can increasingly be the solution rather than giving it all up in China.
The bill will not surprise investors. Emerging market fund managers traded the widely held U.S. stock listings as
Alibaba Holding Group
(BABA),
JD.com
(JD),
NetEase
(NTES) for their secondary enrollments in Hong Kong for months, in anticipation of the measure. And some of the top Chinese companies have sought secondary listings, with 30 of the approximately 190 Chinese companies listed in the US having this as a safety net.
Retail investors can also access these lists. For example, Interactive Brokers provides access to 135 markets, including Hong Kong, and allows trading in 23 currencies; Fidelity offers its investors direct access to 25 foreign markets, including Hong Kong, with settlement in 16 currencies. Schwab clients who wish to trade directly in local markets like Hong Kong in the local currency can do so through a global account.
But more than 100 companies still have no list, including popular electric vehicle stocks like
You’re here
rival
Nio
(NIO), and
Xpeng
(XPEV). Here, a framework can be to think about Brexit. “If you had convinced yourself that Brexit was happening tomorrow and that you had better act, you would have been two to three years premature,” says Patrick Chovanec, economic advisor at Silvercrest Asset Management. “I’ve always argued that a lot of these companies don’t belong to the US stock exchanges, but that doesn’t mean you’re pulling the rug. The three-year time horizon creates a framework for negotiations between the United States and China. They will have three years to develop an outlet for companies that cannot meet compliance.
Another reason few expect an immediate sale: Investors are likely to check whether the new administration has a better chance of seeking a compromise with China on the audit – although most analysts attribute a low probability to such a truce.
Chinese companies are expected to meet closer to home listing requirements, which range from criteria for revenue, market capitalization, free float and management continuity, but they may find a more hospitable context. The Hong Kong Stock Exchange has already changed the rules to make more companies eligible for listing there, and mainland Chinese stock exchanges, including the Nasdaq-like STAR board in Shanghai, are also making changes to make the market domestic. more attractive to Chinese tech companies, said Wechang Ma, portfolio manager at global investment manager NinetyOne, which oversees more than $ 140 billion in assets, via email.
If companies that currently have secondary listings in Hong Kong leave the United States and the Hong Kong listing changes to a primary listing, those companies could become eligible for the Stock Connect to the South program which gives mainland investors l ‘access to equities listed in Hong Kong.
This could be beneficial in the longer term for some of these companies, with domestic investors willing to sometimes pay higher valuations for Chinese tech companies listed in Hong Kong than international investors pay for their peers listed in the United States, says My.
Ultimately, the delisting push could create a two-tiered version of Chinese stocks – those that have secondary listings or that can get a listing in Hong Kong or mainland China and are large enough to attract investor interest. and a lot of liquidity and perhaps a smaller batch of companies that do not adhere to the listing restrictions or find little liquidity. Some of these companies could go private, perhaps at lower valuations.
More worrying for investors, however, could be the measures that increase tensions between the two countries. Among clients, especially hedge funds, Henrietta Treyz, director of economic policy research at Veda Partners, says the most interest is in measures that could provoke a retaliatory response, such as pushing China to populate its own blacklist of American companies. The delisting bill does not fall into this category.
Analysts expect Beijing to take a wait-and-see approach in the coming months as they attempt to assess the Biden administration’s approach. While the recovery and the pandemic are likely to be the administration’s initial focus, Treyz notes that China is one of the few areas of bipartisan support – opening the door in the longer term to a project of More expansive law linked to China that addresses issues on multiple fronts. , through agencies, including human rights, digital taxes on climate change, and opening access to certain markets – areas where the progressive part of the Democratic Party and more hawkish Republicans could possibly find common ground.
This means that assessing the risk associated with China will be a skill investors will want to hone for 2021 and beyond.
Write to Reshma Kapadia at [email protected]
[ad_2]
Source link