Markets: Investors struggle to navigate U.S.-China rivalry
Days before Donald Trump leaves the White House, new rules about investing in Chinese companies have “flummoxed financial institutions” and investors, said Eric Platt in the Financial Times. Last week, the New York Stock Exchange announced it would heed an executive order banning investment in companies that have ties to the Chinese army. The exchange then dropped its plan to delist three Chinese tech firms days later, then reversed course yet again “under pressure from the Trump administration.” Further whipsawing investors, the U.S. also threatened to add Chinese megafirms Alibaba and Tencent to the U.S. investment blacklist before Trump leaves office. Many funds aren’t even attempting to decipher the swiftly shifting rules and are just cutting stakes in Chinese companies. A transition in the White House may not alter this dynamic. “This is a rivalry that is likely to be with us regardless of the change in the U.S. administration,” says one fund manager.
Overseas companies selling shares on U.S. exchanges are actually listed through American depositary receipts, or ADRs, said Chong Koh Ping in The Wall Street Journal, which enable investors to buy stakes “without the complexity of buying shares overseas.” If shares are delisted, “only non-American entities will want to buy” them, making them more difficult, but not impossible, to unload. If you already own ADRs of the three most recently delisted firms, there’s no requirement to sell them until November.
Despite the short-term risks, larger investors “still see reason to increase holdings of Chinese stocks in their long-term portfolios,” said Reshma Kapadia in Barron’s. One factor: China’s economy is recovering from the pandemic faster than others. The enthusiasm is tempered, though, by fears of a regulatory clampdown on financial companies, raising “questions about the future of Alibaba and fintech giant Ant Group.” Fund managers “have played down worstcase scenarios,” such as a government takeover of internet companies. Still, investors are spooked by questions about how much freedom China’s companies will have—concerns exacerbated by the mysterious disappearance from the public eye of Jack Ma, “the typically ubiquitous Alibaba co-founder and China’s richest man.”
Delisting won’t solve anything, said Tim Culpan in Bloomberg .com. Depository receipts account for a meager percentage of the companies’ total shares, so it will hardly hurt financially. It does, however, make the NYSE look less like the “center of global capitalism” than “simply a domestic institution” subject to U.S. “whims.” Trump never learned that curbing Beijing requires “more than tough rhetoric and a few strokes of the pen,” said Gina Chon in BreakingViews.com. Just as “lawsuits tripped up other hurried blocks on TikTok and WeChat,” the NYSE’s flipflop was the result of another “rushed and ambiguous” edict. Investors are caught in the middle again.