Traders work at the NYSE plant in New York.
NYSE
BEIJING: For Americans who want to replicate China’s growth history, investing in the country’s U.S. listed stocks now has a political risk that could lead to declines.
This means that a Chinese company listed on a stock exchange like the Nasdaq would lose access to a large group of buyers, sellers and intermediaries. The centralization of these different market participants helps to create what is called liquidity, which in turn allows investors to quickly convert their holdings into cash.
The development of the U.S. stock market over the decades also means that companies listed on established stock exchanges are part of a system of regulation and institutional operations that can offer certain protections to investors.
Once the company’s shares are withdrawn, the company’s shares can continue to operate through a process known as “over-the-counter”. But that means stocks are out of the system: from major financial institutions, deep liquidity, and the ability of sellers to find a buyer quickly without losing money.
“The most practical thing for a typical investor 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“You’ll probably have to give up sooner or later (an action that will be withdrawn soon), so place your bet now,” he said. “Is it better to sell now or wait for some kind of bounce?”
The New York Stock Exchange announced last week that it would withdraw three Chinese telecommunications giants named in President Donald Trump’s executive order banning U.S. investment in companies with alleged links to the Chinese military.
Assuming the transactions were settled through a third-party system on Jan. 7 and 8, the stock exchange said it would suspend local trading in shares of China Mobile, China Unicom and China Telecom before the market opens on Jan. 11. gener.
Shares of the three companies fell on Monday in New York. The trading volume for the day approached that of the entire previous month, according to Wind Information data.
But companies ’Hong Kong-traded shares rose during Tuesday’s session after the New York Stock Exchange reversed its withdrawal decision, citing additional talks with regulators by executive order.
Trump’s executive order allows U.S. investors until Nov. 11 to divest or sell the affected stakes. Most so-called companies, if publicly listed, are not listed in the US
Tensions between the US and China have risen under the Trump administration. A trade-focused dispute just over two years ago has overwhelmed technology and finance.
It is unclear how US President-elect Joe Biden will manage financial flows between the two countries. Analysts hope his administration will bring together traditional U.S. allies to work together to put more pressure on Beijing to deal with long-standing complaints about the country’s unfair trade practices.
Withdrawal from the list is not the end
Chinese stocks have been withdrawn from US stock exchanges for reasons other than politics.
About a decade ago, a regulatory crackdown on accounting fraud led to a series of moves. Other Chinese companies chose to return to their domestic market, where they could raise more money from investors more familiar with their businesses.
Last summer, Chinese coffee chain operator Luckin Coffee was withdrawn from the Nasdaq after the company revealed the manufacture of 2.2 billion yuan ($ 340 million) in sales. Shares reached a 52-week low of 95 cents per share.
But shares rose even after going “over-the-counter” and closed Monday at $ 8.64 each.
Most of the Chinese companies that have been listed in New York in recent years are consumer-focused technology companies.
Chinese companies continue to want the prestige of the New York market, while global investors continue to buy into it. China-based companies raised $ 11.7 billion through 30 initial public offerings in the United States last year, the largest amount of capital since 2014, according to Renaissance Capital.
The firm’s analysis found that by 2020, Chinese companies that raised at least $ 100 million achieved an average total return of 81%.