SINGAPORE – According to the consulting firm Bain & Company, fear of Chinese companies kicking off US stock exchanges will eventually benefit.
This is because the companies in Hong Kong want to list to gain access to international investors and attract funds in the market, suggested John Fildes, expert partner of Bain & Company.
The New York Stock Exchange (NYSE) will delist three Chinese telecommunications giants, after taking the decision twice. On Thursday, it finally said it would remove U.S. shares from China Telecom, China Mobile and China Unicom, citing an executive order signed by President Donald Trump banning U.S. investment in Chinese companies with alleged ties to China’s military. .
But this is all to China’s advantage, as these companies will do a secondary listing in Hong Kong.
John Fildes
Bain & Company
“If that does happen, it will undoubtedly benefit Hong Kong listings of these companies,” Fildes said, adding that there would be an ‘initial price drop’ due to nervousness over whether US investors would return to the shares.
The three Chinese telecommunications companies listed in Hong Kong fell between 7% and 11% on Thursday after the NYSE announcement.
US 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 U.S. legislation requiring foreign companies to meet U.S. audit standards has prompted many Chinese companies to look at listings elsewhere.
“But it’s all to China’s advantage, because these companies will do a secondary listing in Hong Kong,” he said. “If they are delisted in the US, international investors will be able to access these companies through their Hong Kong listings.”
‘Extremely attractive’ Asian markets
It may not just be ‘bumps in the US’ that are encouraging companies to list in Asia, Fildes said. The markets in China and Hong Kong have become more attractive, although there is ‘a lot of capital’ in the US
“We are seeing the growth of the Star Market in Shanghai as well as the relaxation of some rules around ChiNext in Shenzhen that make local listings more attractive,” he said.
The Star Market and ChiNext are Nasdaq-style technology-oriented boards that have weakened regulations as part of financial market reforms in China.
The Asian markets are extremely attractive and there is a lot of cash.
John Fildes
Bain & Company
Hong Kong is also now “much more attractive”, he said, pointing out that the stock market allows shares with weighted voting rights to be listed. This means that certain stocks provide more voting power than others. Scholarships in Asia have introduced the system, which is used in the US, to compete for initial public offerings.
“Hong Kong is definitely there again with these new rules,” he added. “Shanghai and Shenzhen also make themselves more open and attractive to technology stocks.”
“The Asian markets are very attractive and there is a lot of cash in the area,” he said.
Investors have turned to the stock markets in the low-rate environment and the initial public offering activity in 2020 was “phenomenal” worldwide, Fildes said.
This momentum is likely to continue into this year. “We currently see no real reason why this will not continue in 2021,” he said.