SINGAPORE – Fears of launching Chinese companies on US stock markets will eventually benefit China, according to consulting firm Bain & Company.
This is because those firms would seek to list in Hong Kong to gain access to international investors and attract funds to the market, suggested John Fildes, an expert partner at Bain & Company.
The New York Stock Exchange (NYSE) is set to shut down three Chinese telecommunications giants after making two changes to that decision. On Thursday, he finally said he would eliminate US-traded shares of China Telecom, China Mobile and China Unicom, citing an executive order signed by President Donald Trump banning US investment in Chinese companies with alleged links to the Chinese military.
But everything is for the benefit of China, because these companies will, you know, make a secondary list in Hong Kong.
John Fildes
Bain & Company
“If that happens, then it will no doubt be to the advantage of Hong Kong listings of these companies,” Fildes said, adding that there will be an “initial price drop” because of the nervousness about whether U.S. investors will return to shares.
Shares in Hong Kong of the three Chinese telecommunications companies fell between 7% and 11% on Thursday, according to the NYSE announcement.
American flags outside the New York Stock Exchange (NYSE) in New York, USA, Monday, January 4, 2021.
Michael Nagle | Bloomberg | Getty Images
Fildes also told CNBC’s “Street Signs Asia” that the US law requiring foreign companies to comply with US auditing standards has led many Chinese companies to look at listings elsewhere.
“But this is for the benefit of China, because these companies will, you know, make a secondary list in Hong Kong,” he said. “If they are removed from the list in the US, then international investors will be able to access these companies through their lists in Hong Kong.”
“Extremely attractive” Asian markets
It may not be just “roadblocks” in the United States that are pushing companies to list in Asia, Fildes said. Chinese and Hong Kong markets have become more attractive, even though “a lot of capital” needs to be raised in the US
“We are seeing the growth of the Star Market in Shanghai, as well as the relaxation of rules around ChiNext in Shenzhen that make domestic listings more attractive,” he said.
Star Market and ChiNext are Nasdaq-style technology-oriented councils that have weakened regulations as part of reforms in China’s financial markets.
Asian markets are extremely attractive and there is a lot of money around.
John Fildes
Bain & Company
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 actions give more voting power than others. Asian exchanges have introduced the system, which is practiced in the US, to compete for initial public offerings.
“Hong Kong is definitely back with these new rules,” he added. “Shanghai and Shenzhen are becoming more open and attractive to technology stocks as well.”
“Asian markets are extremely attractive and there is a lot of money around,” he said.
Investors have turned to the stock markets at low rates, and the initial public offering activity in 2020 has been “phenomenal” globally, Fildes said.
This momentum is likely to continue this year. “We do not see, at this time, any real reason why this will not continue until 2021,” he said.