SHANGHAI (Reuters) – As US investors pour shares of Chinese companies into the blacklist of outgoing President Donald Trump, bargain hunters in China take the opposite side of the trade, betting a Joe Biden presidency will reverse the investment ban.
Trump signed an executive order on Nov. 12 banning investment in U.S. securities in Chinese companies allegedly owned or controlled by the Chinese military.
The outgoing US president is planning to expand this blacklist of 35 companies to include Alibaba and Tencent.
As U.S. investors rush to sell shares of the sanctioned companies and their subsidiaries before the executive order goes into effect on Jan. 11, Chinese investors are being introduced.
Since the order was announced, mainland Chinese holdings in Hong Kong-listed shares of China Railway Construction Corp (CRCC) and CNOOC Ltd through China-Hong Kong Connect have tripled, according to the operator. the Hong Kong Exchanges and Clearing Ltd.
Other blacklisted shares, including rail equipment maker CRRC Corp., China Communications Construction Co. and semiconductor giant SMIC, also witnessed large inflows of money.
Zhu Haifeng, a veteran Chinese retail investor, said he was negotiating the hunt on CNOOC and CRRC, which had lost up to 27 percent since the Trump order.
“They’re globally competitive companies and they’re China’s‘ name cards ’,” said Zhu, who sees a limited impact on business fundamentals due to U.S. sanctions.
Wan Chengshui, a portfolio manager at Hangzhou-based Golden Eagle Fund Management Co., 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 change for the better, ”Wan said, predicting that Trump’s executive order will be overturned and sanctions against Tencent and Alibaba will not materialize.
Wan is not alone.
When Tencent fell nearly 5% in Hong Kong after the news of the potential blacklist on Thursday, Chinese investors threw 4.6 billion US dollars (593.29 million US dollars) into their shares in through a cross-border trade channel, making it the most traded action scheme that day.
Global index publishers MSCI, FTSE Russell and S&P Dow Jones Index have struggled to remove blacklisted stocks from their global benchmark indices, forcing passive investors to leave those holdings.
Phillip Wool, head of investment solutions at Rayliant Global Advisors, said investors could find bargains as active investors tip stocks to tackle passive exits.
“Non-US investors will examine the fall in the prices of these shares and at some point decide that it is a buying opportunity,” Wool said.
Meanwhile, uncertainty remains 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 outperforming the rest of the market on how the political situation will develop.”
After flipping twice this month on the issue, the New York Stock Exchange said Wednesday it will withdraw three Chinese telecommunications companies.
Since the first NYSE withdrawal announcement on January 1, Chinese investors have been firm buyers. Connect’s mainland holdings in China Mobile Ltd., China Telecom Corp. Ltd. and China Unicom Hong Kong Ltd. have jumped 37%, 28% and 41%, respectively.
(1 $ = 7,7534 Hong Kong dollars)
Reports by Samuel Shen and Andrew Galbraith; Edited by Vidya Ranganathan and Kim Coghill