China’s stock ban could include two of the largest companies that trade on US stock exchanges.
In November, an executive order from President Trump sought to ban investments in other companies with similar connections. Now, US officials can also prohibit Americans from investing in Alibaba (NYSE: BABA) and Tencent Holdings (OTC: TCEHY). Both the State Department and the Department of Defense pushed for this ban, citing these companies’ ties to China’s military and security services.
The companies have a combined market capitalization of $ 1.3 trillion. In addition, US mutual funds and many institutional investors hold significant amounts of shares in Alibaba and Tencent.
Still, despite their size, they do not appear in conventional indexes. O Dow Jones Industrial Average, a Nasdaq, and the S&P 500 does not include these companies.
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In addition, China prohibits foreigners from owning shares in its companies. Instead, shareholders own parts of the Cayman Islands-based holding companies with a contractual right to the profits of each company.
Despite this alternative arrangement, both companies raised tens of billions through these holding companies. If this ban is implemented, they will lose an important source of investment capital.
In addition, Tencent also owns WeChat and holds stakes in many gaming companies in the United States. Such a ban could make WeChat’s future in the United States uncertain and the state of those investments.
This directive also comes at a time when tensions are high on both sides of the Pacific. Alibaba founder Jack Ma downgraded his profile in China after criticizing the Chinese government.
In the United States, the Trump administration is working to achieve as much as possible before Joe Biden becomes president. It is unclear whether Biden will maintain this executive order once he takes office.