SINGAPORE – Fears that Chinese companies will open American stock exchanges will ultimately benefit China, according to consultancy Bain & Company.
That’s because these companies would seek to list themselves 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 expected to remove three Chinese telecoms giants from the list, after making two twists in that decision. On Thursday, he finally said he would withdraw shares traded in the United States from China Telecom, China Mobile and China Unicom, citing an executive order signed by President Donald Trump that banned American investments in Chinese companies with alleged ties to China’s military. .
But all of this is for the benefit of China because these companies will, you know, be making a secondary listing in Hong Kong.
John Fildes
Bain & Company
“If that happens, then it will undoubtedly benefit the Hong Kong listings of these companies,” said Fildes, adding that there would be an “initial price drop” because of nervousness about whether American investors would return to the stock.
The Hong Kong-listed shares of the three Chinese telecommunications companies plunged between 7% and 11% on Thursday after the NYSE announcement.
American flags outside the New York Stock Exchange (NYSE) in New York, USA, on Monday, January 4, 2021.
Michael Nagle | Bloomberg | Getty Images
Fildes also told CNBC’s “Street Signs Asia” that the United States law that requires foreign companies to comply with US auditing standards has led many Chinese companies to look at listings elsewhere.
“But all of this is for the benefit of China because these companies will be, you know, making a secondary listing in Hong Kong,” he said. “If they are withdrawn from the United States, international investors will be able to access these companies through their listings in Hong Kong.”
Asian markets ‘extremely attractive’
It may not be just “roadblocks” in the United States that are pressing companies to list in Asia, said Fildes. The China and Hong Kong markets have become more attractive, although there is “a lot of capital” to be raised in the USA
“We are seeing the growth of the Star Market in Shanghai, as well as the easing of some rules around ChiNext in Shenzhen, which are making domestic listings more attractive,” he said.
The Star Market and ChiNext are Nasdaq-style technology-focused councils that have loosened regulations as part of reforms in China’s financial markets.
Asian markets are extremely attractive and there is a lot of money available.
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 certain shares confer more voting power than others. Stock exchanges in Asia introduced the system, which is practiced in the United States, to compete for initial public offerings.
“Hong Kong is definitely back with these new rules,” he added. “Shanghai and Shenzhen are also becoming more open and attractive to technology stocks.”
“Asian markets are extremely attractive and there is a lot of money available,” he said.
Investors have turned to equity markets in the low-rate environment and initial public offering activity in 2020 was “phenomenal” globally, said Fildes.
That momentum is likely to continue this year. “At the moment, we see no real reason why this should not continue in 2021,” he said.