US officials deliberated, but ultimately decided to bring in US investments Alibaba Group Holding Ltd. and Tencent Holdings Ltd., a person familiar with the discussions, said a cloud of uncertainty over Asia’s two largest companies was lifted.
The Treasury Department blocked an attempt by the Pentagon to add the two internet firms on the grounds that they were helping the military, the person said, asking not to be identified in private conversations. Officials also debated blocking search leaders Baidu Inc. but dropped the plan, the person added. Alibaba’s share in Hong Kong rose a whopping 3.9%, while Tencent rose nearly 5% after news of the delay, first reported by the Wall Street Journal. Their dollar bonds are spreading tightened Thursday morning.
The decision removes the uncertainty surrounding Chinese social media and gaming leader Tencent and Alibaba, the e-commerce titan founded by billionaire Jack Ma that is now under intense scrutiny by Beijing regulators. President Donald Trump has signed an amended version of his executive order prohibiting investment in Chinese military-related companies, the White House said in a statement. statement Wednesday in which no company was mentioned by name.
Imposing a ban on the couple would have spelled the most dramatic escalation to date by the outgoing administration, given the sheer size of the two companies and the difficulty in settling positions. At over $ 1 trillion, their combined market value is nearly twice the Spanish stock market, while the companies together account for about one-tenth of the weight for MSCI Inc.’s emerging markets benchmark.
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Citing national security, Trump earlier in November signed an executive order demanding investors to withdraw from Chinese companies linked to that country’s military. The Department of Defense will add more companies to the roster, the person said without elaborating further.
That would further weaken the relationship between the two largest economies in the world, which have collided across everything from Covid-19 to Hong Kong. Washington authorities have stepped up efforts to rob Chinese companies of US capital in the closing months of the Trump administration, adding to economic tensions as President-elect Joe Biden prepares to take over this month.
Hasty measures have sometimes led to confusion in the markets and price fluctuations, such as when the New York Stock Exchange changed course twice in a decision to take three Chinese telecommunications companies off the stock exchange. The NYSE is now moving forward with its original delisting plan after US Treasury Secretary Steven Mnuchin disagreed with its decision to postpone the companies.
Trump’s order banned trading of affected securities from Jan. 11. If Biden leaves Trump’s order in place, US investment firms and pension funds should sell their stakes in companies associated with the Chinese military on Nov. 11. And if the US determines that even more companies will have military ties in the future, US investors will have 60 days from that decision to divest.
– With the help of Catherine Ngai
(Updates with Hong Kong action and chart from the second paragraph)