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Chinese bargain hunters pile on stocks blacklisted by Trump

SHANGHAI (Reuters) – As US investors drop shares of Chinese companies blacklisted by outgoing President Donald Trump, bargain hunters in China are taking the other side of that trade, betting that Joe Biden’s presidency will lift the investment ban.

File image: The SMIC logo appears at the China International Semiconductor Expo (IC China 2020) in Shanghai, China, on October 14, 2020. Reuters / Ali Song

Trump signed an executive order on November 12 banning investment in US securities in Chinese companies that are allegedly owned or controlled by the Chinese military.

The outgoing US president is considering expanding that blacklist of 35 companies to include Alibaba and Tencent.

With US investors rushing to sell shares in sanctioned companies and their subsidiaries before the executive order came into effect on January 11th, Chinese investors are starting to take a toll.

Since the order was announced, mainland China’s holdings of Hong Kong-listed shares of China Railway Construction Corp (CRCC) and CNOOC Ltd via China-Hong Kong Connect have nearly tripled, according to exchange operator Hong Kong Exchanges and Clearing Ltd.

Other blacklisted stocks, including railway equipment maker CRRC, China Communications Construction Co and the semiconductor giant SMIC, also saw massive inflows of money.

Zhou Haifeng, a veteran Chinese retail investor, said he took a deal at CNOOC and CRRC, which had lost up to 27% since Trump’s order.

They are globally competitive companies, and they are Chinese ‘name cards’, said Chu, who sees limited impact on corporate fundamentals from US sanctions.

Wan Chengshui, a portfolio manager at the Hangzhou-based Golden Eagle Fund Management Co, said he plans to increase his Tencent holdings if prices drop further.

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Trump is politicizing everything in the name of national security. Wan said, “When Biden takes office, I think things will turn out for the better.”

And that he is not alone.

When Tencent plunged nearly 5% in Hong Kong after news of its blacklisting Thursday, Chinese investors invested a net HK $ 4.6 billion ($ 593.29 million) into its shares via the cross-border trading channel, making it the most traded stock under the scheme. At that day.

Global index publishers MSCI, FTSE Russell and S&P Dow Jones scrambled to remove blacklisted securities from their global benchmarks, forcing passive investors to dump those holdings.

Philip Wall, Head of Investment Solutions at Rayliant Global Advisors, said investors may find deals as active equity investors dump negative outflows.

“Non-US investors will look at the price of those shares falling, and at some point, they’ll decide it’s a buying opportunity,” Wall said.

Meanwhile, Wall said that uncertainty remained about the scope and effects of Trump’s executive order, while the gradual expansion of the list is another guessing game.

Therefore, “there is also a potential opportunity for active investors to speculate on the rest of the market in terms of how the political situation will evolve.”

After making a round twice this month on the issue, the New York Stock Exchange said on Wednesday it would write off three Chinese telecoms companies.

Since the announcement of the first delisting on the New York Stock Exchange on January 1, Chinese investors have been persistent buyers. Mainland holdings under Connect in China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd jumped 37%, 28% and 41%, respectively.

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(1 dollar = 7.7534 Hong Kong dollars)

(Samuel Shane and Andrew Galbraith report) Editing by Vidya Ranganathan and Kim Kogel