SHANGHAI (Reuters) – As US investors relinquish shares of Chinese companies on President Donald Trump’s blacklist, Chinese bargain hunters take the opposite side of the trade, as if a Joe Biden presidency will reverse the investment ban.
Trump signed an executive order on November 12 banning investments in US securities in Chinese companies that are owned or controlled by the Chinese military.
The retiring US president plans to expand the blacklist of 35 companies to include Alibaba and Tencent.
As US investors rush to sell shares to sanctioned companies and their subsidiaries before the executive order takes effect on January 11, Chinese investors enter.
Since the announcement of the order, the holdings by the mainland Chinese in the Hong Kong listed shares of China Railway Construction Corp (CRCC) and CNOOC Ltd through China-Hong Kong Connect have roughly tripled, according to Hong Kong Exchanges and Clearing Ltd.
Other blacklisted stocks, including rail equipment maker CRRC Corp., China Communications Construction Co. and semiconductor giant SMIC, also witnessed large cash flows.
Zhu Haifeng, a veteran Chinese retail investor, said he hunted in CNOOC and CRRC, both losing up to 27% of Trump’s order.
“They are globally competitive companies and they are China’s ‘name books’,” said Zhu, who sees a limited impact on the fundamentals of US sanctions companies.
Wan Chengshui, portfolio manager at Golden Eagle Fund Management Co. in Hangzhou, said he intends to increase his stake in Tencent if prices continue to fall.
“Trump politicized everything in the name of national security. When Biden takes office, I think things will change for the better, “Wan said, predicting that Trump’s executive order would be revoked and sanctions against Tencent and Alibaba would not materialize.
Wan is not alone.
When Tencent fell nearly 5 percent in Hong Kong after news of potential blacklists on Thursday, Chinese investors invested $ 4.6 billion ($ 593.29 million) in its shares through a cross-border trading channel. , making it the most traded stock scheme of the day.
MSCI, FTSE Russell and S&P Dow Jones Index global index publishers have all struggled to blacklist securities from their global benchmarks, forcing passive investors to give up those holdings.
Phillip Wool, head of investment solutions at Rayliant Global Advisors, said investors could find bargains as active investors threw shares for front-end liabilities.
“Non-US investors will look at falling stock prices and, at some point, decide it’s a buying opportunity,” Wool said.
Meanwhile, uncertainty persists around the purpose and implications of Trump’s executive order, while gradually expanding the list is another guessing game, Wool said.
Therefore, “there is also a potential opportunity for active investors to exclude the rest of the market as to how the political situation will unfold”.
After making U-turns twice this month on the issue, the New York Stock Exchange said on Wednesday it would write off three Chinese telecommunications companies.
Since the first NYSE withdrawal announcement on January 1, Chinese investors have been firm buyers. Continental holdings under Connect in China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd increased by 37%, 28% and 41%, respectively.
($ 1 = $ 7.7534 Hong Kong)
Reporting by Samuel Shen and Andrew Galbraith; Editing by Vidya Ranganathan and Kim Coghill