Traders work on the floor of the NYSE in New York.
NYSE
BEIJING – For Americans who want to play the China growth story, investing in country-listed US equities now poses a political risk that could lead to delisting.
This means that a Chinese company traded on a stock exchange such as the Nasdaq will lose access to a broad pool of buyers, sellers and intermediaries. The centralization of these different market participants helps to create the so-called liquidity, which in turn enables investors to quickly convert their shares into cash.
The development of the US stock market over the decades also means that companies listed on established stock exchanges are part of a system of regulation and institutional activities that can provide certain investor protection.
Once a stock is listed, the company’s shares can be traded through a process known as ‘over-the-counter’. But that means the stock is out of the system – from large financial institutions, deep liquidity and the ability for sellers to quickly find a buyer without losing money.
“The most practical thing a typical investor should worry about is the price,” said James Early, CEO of investment research firm Stansberry China.
“You will probably have to give up a stock (which will soon have to be removed from the list) sooner or later, so make your bet now,” he said. “Is it better to sell now, or are you waiting for some kind of refusal?”
The New York Stock Exchange announced last week that it would remove three Chinese telecommunications giants named in President Donald Trump’s executive order banning U.S. investment in companies with alleged ties to China’s military.
Assuming that trading on January 7 and 8 is settled through a third-party system, the stock exchange said it would halt local trading in shares of China Mobile, China Unicom and China Telecom before the market opens on January 11.
The shares of the three companies traded in New York on Monday. According to data from Wind Information, the trading volume for the day is closer to that of the previous month.
But shares traded in Hong Kong rose during Tuesday’s session after the New York Stock Exchange reversed its delisting decision, citing additional talks with regulators over the executive order.
Trump’s executive order gives U.S. investors a chance to sell until Nov. 11, or affect the sold-out holdings. Most listed companies are not listed in the United States if they are publicly traded
Tensions between the US and China have increased under the Trump administration. A dispute that focused on trade just over two years ago has since spilled over into technology and finance.
It is unclear how the elected US president, Joe Biden, will handle the financial flow between the two countries. Analysts expect his government to rally traditional U.S. allies to work together to put greater pressure on Beijing to address long-standing complaints about the country’s unfair business practices.
The delisting is not the end
Chinese stocks are listed on the U.S. stock exchange for reasons other than politics.
About a decade ago, a lawsuit against accounting fraud led to a number of removals. Other Chinese companies preferred to return to their housing market, where they could potentially raise more money from investors who were more familiar with their businesses.
Last summer, Chinese coffee chain operator Luckin Coffee was removed from the Nasdaq, after the company unveiled the production of 2.2 billion yuan ($ 340 million) in sales. The stock reached a 52-week low of 95 cents a share.
But the stock rose even after doing ‘not-the-counter’ and closing at $ 8.64 each on Monday.
Most Chinese businesses listed in New York over the past few years are consumer-focused technology businesses.
Chinese companies still hold interest in the performance in the New York market, while global investors are still buying. China-based companies raised $ 11.7 billion through 30 U.S. public offerings last year in the U.S., according to Renaissance Capital, the largest capital since 2014.
The company’s analysis found that the Chinese companies that raised at least $ 100 million had an average return of 81% by 2020.