Traders are working on the NYSE floor in New York.
NYSE
BEIJING – For Americans who want to play the story of China’s growth, investment in the country’s US-listed stocks now poses a political risk that could lead to withdrawal.
This means that a Chinese company traded on a stock exchange such as Nasdaq would lose access to a large group of buyers, sellers and intermediaries. Centralizing these different market participants helps to create what is called liquidity, which in turn allows investors to quickly turn their holdings into cash.
The development of the US stock market over the decades also means that companies listed on established stock exchanges are part of a system of institutional regulation and operations that can provide some protection to investors.
Once a share is deregistered, the company’s shares may continue to trade through a process known as “over-the-counter”. But this means that the stock is outside the system – of major financial institutions, deep liquidity and the ability of sellers to quickly find a buyer without losing money.
“The most practical thing a typical investor has to worry about is price,” said James Early, CEO of investment research firm Stansberry China.
“You’ll probably have to give up (sooner or later a stock to be written off), so bet now,” he said. “Better sell now or wait for some kind of jump?”
The New York Stock Exchange announced last week that it would withdraw three Chinese telecommunications giants, named in President Donald Trump’s executive order, which banned US investment in companies with alleged links to the Chinese military.
Assuming that the transactions will be settled through a third party system on January 7 and 8, the stock exchange said it will suspend local transactions in shares of China Mobile, China Unicom and China Telecom before the market opens on January 11.
The shares of the three companies fell on Monday in New York trading. The trading volume for the day approached that of the entire previous month, according to Wind Information data.
But Hong Kong’s shares traded in Hong Kong rose during Tuesday’s session after the New York Stock Exchange overturned its delisting decision, citing additional talks with executive regulators.
Trump’s executive order offers US investors until November 11 to sell or sell the affected shares. Most of the named companies, if publicly traded, are not listed in the US
Tensions between the US and China have risen under the Trump administration. A trade dispute that focused on trade just over two years ago spilled over into technology and finance.
It is unclear how US President-elect Joe Biden will manage the financial flows between the two countries. Analysts expect his administration to bring together traditional US allies to work together to put more pressure on Beijing to resolve long-standing complaints about the country’s unfair trade practices.
Delisting is not the end
Chinese shares have been removed from US stock exchanges for reasons other than political ones.
About a decade ago, a regulatory crackdown on accounting fraud led to a number of moves. Other Chinese companies have chosen to return to their home market, where they could raise more money from investors who were more familiar with their business.
Last summer, Chinese coffee chain operator Luckin Coffee was fired from the Nasdaq after the company revealed it was making 2.2 billion yuan ($ 340 million) in sales. The action reached a minimum level of 52 weeks, of 95 cents per share.
But the shares rose even after they passed “without a prescription” and closed on Monday at $ 8.64.
Most Chinese start-ups that have been listed in New York in recent years are consumer-focused technology companies.
Chinese companies remain eager to market New York for prestige, while global investors still buy. Chinese companies raised $ 11.7 billion through 30 initial public offerings in the United States last year, the most capital since 2014, according to Renaissance Capital.
The company’s analysis found that in 2020, Chinese companies that raised at least $ 100 million had an average total return of 81%.