(Bloomberg) – Shares of Xiaomi Corp. jumped in Hong Kong after a U.S. court barred the Department of Defense from restricting U.S. investment in the Chinese smartphone giant.
Shares of the consumer electronics maker rose to 12% on Monday, the largest intraday rise in nearly a month. Under the Trump administration, the Department of Defense has placed Xiaomi on a list of companies with alleged ties to the Chinese military, causing financial constraints that would take effect next week. U.S. District Judge Rudolph Contreras temporarily suspended the ban and sided with Xiaomi in a lawsuit claiming the move was “arbitrary and fickle” and deprived the company of its rights to the right process.
Contreras said Xiaomi was likely to get a complete reversal of the ban as the lawsuit arose and gave an initial order to prevent the company from suffering ‘irreparable damage’. After the ban was announced, the smartphone maker had the prospect of being listed on the US stock exchange and removed from global benchmark indices, wiping out as much as $ 44 billion of its market value.
Read more: Xiaomi shares rise in Hong Kong after $ 1.3 billion buyback plan
What Bloomberg Intelligence says
Xiaomi could reverse the negative market sentiment against a temporary injunction against a US investment ban, along with the announced HK $ 10 billion buyback plan. Despite the improvement in the basic factors, the share price of the smartphone maker has been 22.5% lower since the ban was announced on 15 January. Xiaomi is still well positioned to gain market share amid Huawei’s retrenchment, raising average prices and margins higher with the rollout of 5G devices.
– Matthew Kanterman and Nathan Naidu, analysts
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Xiaomi was founded more than a decade ago by billionaire entrepreneur Lei Jun and is the third largest smartphone maker in the world by volume. In the third quarter, it surpassed Apple Inc. in smartphone sales, according to IDC. According to Bloomberg, the company has a range of US investors from Qualcomm Inc. to Vanguard Group and BlackRock Inc. gelok.
Xiaomi plans to continue to request that the court declare the labeling of its association with the military illegal and permanently remove the designation, according to a company statement.
In November, former President Donald Trump signed an order banning US investments in Chinese-owned or controlled enterprises in an attempt to put Beijing under pressure over what the US described as abusive business practices. The US has also banned popular apps such as China and WeChat and TikTok, which pose threats to national security.
Contreras set aside that concern in his ruling Friday. “The court is somewhat skeptical that weighty national security interests are actually involved here,” he wrote. The Department of Defense did not immediately return a request for comment Friday night.
Xiaomi’s ruling could pave the way for more companies to face the limitations of the Trump era, with non-state-owned companies such as Huawei Technologies Co and Semiconductor Manufacturing International Corp. having a greater chance of winning a similar case , Jefferies. Shares of SMIC rose as much as 3.3% in Hong Kong on Monday.
“The possible victory of Xiaomi could challenge the Secretary of Defense’s discretion to classify non-SOEs in China as”, the Communist Chinese military companies, including analysts, including Edison Lee, wrote in a note. “Xiaomi’s potential victory is likely to increase the likelihood that many of Trump’s sanctions against Chinese companies will have to be reversed.”
The case is Xiaomi v. Department of Defense, 21-cv-280, U.S. District Court, District of Columbia (Washington).
(Updates with analyst comments in fourth and ninth paragraphs)
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