SHANGHAI (Reuters) – As American investors divest themselves of shares of Chinese companies on President Donald Trump’s black list, bargain hunters in China are taking the opposite side of that deal, betting that Joe Biden’s presidency will reverse the investment ban. .
Trump signed an executive order on November 12 that prohibits investment in U.S. securities in Chinese companies allegedly owned or controlled by the Chinese military.
The president of the United States who is stepping down is considering expanding the blacklist of 35 companies to include Alibaba and Tencent.
As American investors rush to sell shares in sanctioned companies and their subsidiaries before the executive order goes into effect on January 11, Chinese investors are entering.
Since the order was announced, Mainland Chinese holdings in Hong Kong-listed shares of China Railway Construction Corp (CRCC) and CNOOC Ltd via the China-Hong Kong connection have practically tripled, according to Hong Kong stock exchange operator Exchanges and Clearing Ltd.
Other blacklisted actions, including rail equipment maker CRRC Corp, China Communications Construction Co and semiconductor giant SMIC also witnessed a huge influx of money.
Zhu Haifeng, a veteran Chinese retail investor, said he was bargaining at CNOOC and CRRC, which had lost up to 27% since Trump’s order.
“They are globally competitive companies and are China’s ‘calling cards’,” said Zhu, who sees a limited impact on corporate fundamentals with U.S. sanctions.
Wan Chengshui, portfolio manager at Golden Eagle Fund Management Co, based in Hangzhou, said he plans to increase his stakes in Tencent if prices drop further.
“Trump politicized everything in the name of national security. When Biden takes office, I think things will get better, ”said Wan, predicting that Trump’s executive order will be lifted and sanctions against Tencent and Alibaba will not materialize.
Wan is not alone.
When Tencent plunged nearly 5% in Hong Kong after news of the potential blacklist on Thursday, Chinese investors invested HK $ 4.6 billion ($ 593.29 million) in their shares through an international trading channel , becoming the most actively traded share under the scheme that day.
Global index publishers MSCI, FTSE Russell and S&P Dow Jones Index have endeavored to exclude blacklisted securities from their global benchmarks, forcing passive investors to dispose of these holdings.
Phillip Wool, head of investment solutions at Rayliant Global Advisors, said investors can find bargains as active investors dispose of stocks in favor of passive outflows.
“Investors outside the US will see the prices of these shares drop and, at some point, they will decide it is a buying opportunity,” said Wool.
Meanwhile, uncertainty persists around the scope and implications of Trump’s executive order, while the gradual expansion of the list is another guessing game, Wool said.
Therefore, “there is also a potential opportunity for active investors in terms of guessing the rest of the market on how the political situation will develop”.
After turning around twice this month on the subject, the New York Stock Exchange announced on Wednesday that it will remove three Chinese telecommunications companies from the list.
Since the NYSE’s first delisting announcement on January 1, Chinese investors have been adamant buyers. Continent 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 dollars)
Reporting by Samuel Shen and Andrew Galbraith; Editing by Vidya Ranganathan and Kim Coghill