Alibaba stock pops in Hong Kong debut

Chinese companies facing a downturn in the U.S. can turn to Hong Kong

NetEase has partly attributed its decision to the need for more financing, which it wants to use to expand its business. But she also made clear that she believed the United States had become more hostile to Chinese companies, as regulators and legislators were looking into new rules that would lead to more stringent scrutiny. Some restrictions can make it more difficult for companies to go public or trade in New York.

The issuance of such rules “can cause investor uncertainty for affected exporters, including us, our market price.” [US shares] May be affected negatively, and our listing may be canceled if we cannot “meet the requirements”, NetEase wrote in registrations to the Hong Kong Stock Exchange.

Netease’s admission is a sign of how deteriorating the relationship between the United States and China is – and how much it is at stake for Chinese companies that are not putting in place a viable backup plan.

Other companies are considering Hong Kong as well

“Technology giants in China see Hong Kong as a middle ground,” said Brooke Silvers, chief investment officer of Hong Kong-based Adamas Asset Management.

He added that the city is “under Chinese control, but still has access to the US dollar.” Unlike mainland China, where there are severe restrictions on capital entering and leaving the country, Hong Kong allows capital to flow more openly. The city’s currency is freely convertible.

NetEase will not be the last company to look into Hong Kong either. About 37 Chinese companies meet the requirements to do this, according to the data provider Refinitive, based on market value, amount of revenue and ability to comply with regulations.

It appears that at least a handful of businesses trading in New York are already considering this. E-commerce company JD.com (Dinar) Obtained approval from the Hong Kong Stock Exchange for a secondary listing in Hong Kong, and submitted a prospectus published on Friday. Bloomberg mentioned The company can start trading early this month. Technology companies Baidu (Beidou) And Trip.com (TCOM) According to various Chinese media reports, you may consider similar plans.

Baidu and Trip.com declined to comment. But Baidu’s founder and chief Robin Lee recently suggested that his business could go to Hong Kong if necessary.

“We pay close attention to the tough US government regulations on Chinese companies,” Li said. She told the state-owned China Daily last month. “We are discussing internally what we can do to deal with it, including secondary listing in Hong Kong.”

Evolving impulses

New York has long been an attractive option for foreign companies to go public. Wall Street boasts the largest stock exchanges in the world and the ability to benefit from them Huge amounts of investment capital. For Chinese companies, a list in New York also gave them the ability to avoid strict Chinese underwriting rules, including banning companies with certain types of shareholding structures.

But Beijing has eased some of those restrictions in recent years as part of a drive to push Chinese companies home. The state is trying to improve its position as a major power in the field of technology, and the closer some of the most valuable companies approach, the more influence the government will have on them.

Ali Baba's return home is about satisfying China and buying insurance against the trade war
The desire to persuade Beijing She was widely cited As a big reason for Alibaba’s decision to list in Hong Kong last fall – although analysts have also pointed to tensions between the United States and China and the need to mitigate political risks as an essential factor as well.

“The political calculations that prompted Chinese technology companies listed in the United States to seek secondary listing were originally Beijing’s desire to put these companies under their bureaucratic control,” said Silvers. “But it developed in light of the trade war and the subsequent disengagement.”

It is not entirely clear how quickly new potential US bases could lead to problems for Chinese companies trading in New York. For example, there is a bill that has not yet been passed in the US House of Representatives Those companies are forced to open their books For American regulators – a requirement that Beijing has resisted, which requires companies that trade abroad to keep their own audit papers in mainland China as it cannot be examined by foreign agencies.

But analysts at Goldman Sachs will only force those companies to cancel the list if it cannot be audited for three consecutive years.

Even the prospect of more stringent regulatory scrutiny, though, “is likely to accelerate the trend of its dual listing on the market. [Hong Kong] The Market, “Goldman analysts wrote in a recent report.

The pressure also comes from the Trump administration. On Thursday, Secretary of State Mike Pompeo praised “NASDAQ” for proposing new compliance rules that could affect Chinese companies, adding that other exchanges should consider similar regulations.

“American investors should not be exposed to undue hidden risks associated with companies that do not adhere to the same rules as American companies,” Pompeo said. He said in a statement. “The Nasdaq business should serve as a model for other exchanges in the United States and around the world.”

President Donald Trump gave the authorities 60 days to recommend steps that regulators should take to crack down on Chinese companies that do not adhere to the US audit rules.

“It is both wrong and dangerous for China to benefit from our capital markets without complying with the decisive protection that investors in these markets expect and deserve,” he wrote. In a note published Thursday.

Pros and cons of Hong Kong

A wave of secondary listings could greatly benefit Hong Kong’s financial markets, as stability threatened long ago last year Anti-government protests, More abuse by Beijing and escalating tensions between the United States and China.
The United States can end its special relationship with Hong Kong. But for western companies, it's complicated
Analysts at Jefferies, for example, recently suggested that the Asian financial index is the main focus Hang Seng Index (HSI) He will eventually get a “full turnaround” as more Chinese Internet companies are listed in Hong Kong, outperforming more city-centered stocks, such as banks and real estate companies. Such an “immigration list” could add nearly $ 560 billion to Hong Kong’s market value and raise $ 28 billion in capital.
In a recent research note, Jefferies analysts compare Dow Jones Industrial Average (INDU) To Hang Seng, saying that the New York index outperformed the Hong Kong index because of its desire to replace “stagnant” companies with “successful, high-growth” companies.

“we think that [Hang Seng] “It will undergo a similar change over the next few years, and it will become an indicator that mainly reflects the growth of new economic companies in China,” they wrote.

After all, Ali Baba was a great success story for the city. Shares of the Hong Kong-listed company have jumped 19% since it began trading last November.

“Other companies are following suit,” said Hong Hao, general manager and head of research for the International Telecommunication Bank in Hong Kong. “It is recommended that you have a plan B.”

Trading in Hong Kong is not without risk. The city has become a bright spot in the Washington-Beijing standoff: Trump said last week that the United States She wants to end her own economic and trade relationship With Hong Kong, which could jeopardize the city center as the center of international business.

However, Trump’s announcement did not include any specific sanctions related to the financial sector in Hong Kong. It appears that the Hong Kong dollar’s ​​peg to the dollar is now safe: the city authorities reassured investors this week that they have sufficient reserves to maintain the peg, keeping the city’s currency trading within a narrow and stable range.

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