Traders work on the NYSE floor in New York.
BEIJING – For Americans looking to play China’s growth story, investing in the country’s US-listed stocks now carries a political risk that could lead to delisting.
This means that a Chinese company listed on an exchange like the Nasdaq would lose access to a broad pool of buyers, sellers and intermediaries. The centralization of these various market participants helps create liquidity which in turn enables investors to quickly convert their holdings into cash.
The development of the US stock market over the decades also means that companies listed on established stock exchanges are part of a regulatory and institutional system that can offer certain investor protection.
Once a share is delisted, the company’s shares can continue to be traded through a process known as “over the counter”. However, this means the stock is outside the system – from large financial institutions, high liquidity, and the ability of sellers to find a buyer quickly without losing money.
“The most practical thing a typical investor has to worry about is price,” said James Early, CEO of investment research firm Stansberry China.
“You’ll likely have to give up (a stock that’s about to be delisted) sooner or later, so make your bet now,” he said. “Are you selling better now or are you waiting for some kind of rebound?”
The New York Stock Exchange announced last week it would remove three Chinese telecom giants named in President Donald Trump’s executive order that prohibit U.S. investment in companies allegedly linked to the Chinese military.
Assuming trades will be done through a third-party system on Jan. 7 and Jan. 8, the exchange announced that it would cease local trading in shares of China Mobile, China Unicom and China Telecom before the market on Jan. January opens.
The three companies’ shares fell in New York trading on Monday. According to Wind Information, the trading volume for the day approached that of the entire previous month.
However, the company’s Hong Kong-traded shares rose during Tuesday’s meeting after the New York Stock Exchange reversed its delisting decision and cited additional discussions with regulators about the executive order.
Trump’s Executive Order gives US investors until November 11th to sell or sell affected holdings. The majority of the companies mentioned are not listed in the United States if they are publicly traded.
Tensions between the US and China have increased under the Trump administration. A dispute that centered on commerce a little over two years ago has since spread to technology and finance.
It is unclear how US President-elect Joe Biden will handle financial flows between the two countries. Analysts believe his administration will bring together traditional US allies to work together to put more pressure on Beijing and deal with longstanding complaints about the country’s unfair business practices.
Chinese stocks were withdrawn from US exchanges for reasons other than politics.
About a decade ago a The government’s crackdown on accounting fraud resulted in a number of moves. Other Chinese companies were making a return to their home market where they could potentially raise more money from investors more familiar with their businesses.
Last summer, Chinese coffee chain operator Luckin Coffee was delisted from Nasdaq after the company announced it had made 2.2 billion yuan ($ 340 million) in sales. The stock hit a 52-week low of 95 cents per share.
But stocks also rose past the over-the-counter, closing at $ 8.64 on Monday.
Most of the Chinese startups that have been listed in New York in recent years are consumer-centric tech companies.
Chinese companies continue to be keen on prestige in the New York market, while global investors are still shopping. China-based companies raised $ 11.7 billion through 30 initial public offerings in the US last year, the largest capital since 2014, according to Renaissance Capital.
The company’s analysis found that the Chinese companies that raised at least $ 100 million had an average total return of 81% in 2020.