SINGAPORE – According to consulting firm Bain & Company, fears that Chinese companies will be kicked off the US stock exchanges will ultimately benefit China.
That’s because those companies would look to Hong Kong to access international investors and raise funds for the market, said John Fildes, expert partner at Bain & Company.
The New York Stock Exchange (NYSE) plans to scrap three Chinese telecommunication giants after flipping twice in that decision. On Thursday, it finally said it would remove US-traded shares of China Telecom, China Mobile and China Unicom, citing an executive order signed by President Donald Trump to ban US investments in Chinese companies allegedly linked to the Chinese military .
But all of this is in favor of China, because these companies, you know, are going to be secondary listing in Hong Kong.
John Fildes
Bain & Company
“If it does happen, it will undoubtedly benefit the Hong Kong listings of these companies,” Fildes said, adding that there would be an “initial price drop” due to nervousness over whether US investors will return to the stock.
The Hong Kong-listed shares of the three Chinese telecom companies 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 US law requiring foreign companies to comply with US auditing standards has prompted quite a few Chinese companies to look elsewhere for offers.
“But this is all in China’s favor because these companies will, you know, get a secondary listing in Hong Kong,” he said. “If they are dropped in the US, international investors will have access to these companies through their Hong Kong listings.”
‘Very attractive’ Asian markets
It may not just be “bumps in the road” in the US that drive companies to list in Asia, Fildes said. The markets in China and Hong Kong have become more attractive, although “a lot of capital” needs to be raised in the US
“We see the growth of the Star Market in Shanghai and the relaxation of some rules around ChiNext in Shenzhen that make domestic quotations more attractive,” he said.
The Star Market and ChiNext are technology-focused Nasdaq-style councils that relaxed regulation as part of reforms in China’s financial markets.
The Asian markets are extremely attractive and there is a lot of money around.
John Fildes
Bain & Company
Hong Kong is also now “much more attractive,” he said, noting that the stock market allows companies to list shares with weighted voting rights. This means that certain shares confer more voting rights than others. Stock exchanges in Asia introduced the system, used in the US, to compete for IPOs.
“Hong Kong is definitely back with these new rules,” he added. “Shanghai and Shenzhen are also making themselves more open and attractive to technology stocks.”
“The Asian markets are extremely attractive and there is a lot of money in circulation,” he said.
Investors turned to stock markets in the low-interest environment, and activity in the 2020 IPO was “phenomenal” worldwide, Fildes said.
That momentum is likely to continue this year. “We don’t see any real reason at this point why that won’t happen in 2021,” he said.