SHANGHAI (Reuters) – As US investors dump shares in Chinese companies blacklisted by outgoing President Donald Trump, bargain hunters in China are taking the other side of that trade, betting that a Joe Biden presidency will overturn the investment ban. Rollback.
Trump signed an executive order on Nov. 12 banning US securities investments in Chinese companies allegedly owned or controlled by the Chinese military.
The outgoing US president is considering expanding that blacklist of 35 companies with Alibaba and Tencent.
As US investors rush to sell shares in the sanctioned companies and their subsidiaries before the executive order takes effect on Jan. 11, Chinese investors are coming in.
Since the order was announced, mainland China’s stakes in Hong Kong-listed shares of China Railway Construction Corp (CRCC) and CNOOC Ltd through the China-Hong Kong Connect have roughly tripled, according to stock exchange manager Hong Kong Exchanges and Clearing Ltd.
Other blacklisted stocks, including CRRC Corp, railway equipment manufacturer, China Communications Construction Co and semiconductor giant SMIC, also witnessed a hefty inflow of cash.
Zhu Haifeng, a veteran Chinese retail investor, said he was bargain hunting in CNOOC and CRRC, both of which had lost a whopping 27% since the Trump order.
“They are globally competing companies and they are the ‘business cards’ of China,” said Zhu, who sees limited impact on the fundamentals of US sanctions companies.
Wan Chengshui, portfolio manager at Golden Eagle Fund Management Co in Hangzhou, said he plans to increase his stakes in Tencent if prices fall further.
Trump politicized everything in the name of national security. When Biden takes office, I think things will take a positive turn, ”said Wan, predicting that Trump’s executive order will be quashed and sanctions against Tencent and Alibaba will not be enforced.
Wan isn’t alone.
When Hong Kong’s Tencent fell nearly 5% after news of the possible blacklist on Thursday, Chinese investors put HK $ 4.6 billion ($ 593.29 million) net in their shares through a cross-border trade channel, making it the most active share traded under the scheme that day.
Global index publishers MSCI, FTSE Russell and S&P Dow Jones Index have all attempted to remove the blacklisted securities from their global benchmarks, forcing passive investors to relinquish those positions.
Phillip Wool, head of investment solutions at Rayliant Global Advisors, said investors could find bargains if active investors dump stocks for passive outflows.
“Investors outside the US will look at the falling prices of those stocks and, at some point, decide it is a buying opportunity,” Wool said.
Meanwhile, uncertainty remains about the scope and implications of Trump’s executive branch, while the gradual expansion of the list is another gamble, Wool said.
Therefore, “there is also a potential opportunity for active investors to outsmart the rest of the market as to how the political situation will unfold.”
After making a U-turn on the matter twice this month, the New York Stock Exchange said on Wednesday that it will scrap three Chinese telecom companies.
Since the NYSE’s initial announcement on Jan. 1, Chinese investors have been adamant buyers. The mainland holdings under Connect in China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd are up 37%, 28% and 41% respectively.
($ 1 = 7.7534 Hong Kong dollars)
Reporting by Samuel Shen and Andrew Galbraith; Edited by Vidya Ranganathan and Kim Coghill