Last night, several news organizations announced that the New York Stock Exchange, after announcing just last Friday it would begin delisting the big three state-owned big China telecom stocks, suddenly reversed course, opting not to comply with Trump’s executive order to oust the equities from U.S. bourses.
Not surprisingly, shares in these stocks—China Mobile, China Telecom, China Unicom Hong Kong—skyrocketed in Hong Kong on the news. In American markets, shares were also up premarket, with China Mobile shares rising over 10%.
What it means for investors
Not terribly much, as American shareholders were not in danger of losing their stakes. In three separate filings with market operator Hong Kong Exchanges and Clearing (HKEX) on Monday, the three telecom companies said that investors can deposit their ADS holdings with the Bank of New York Mellon and receive Hong Kong shares in return. While the share swap was not to be a one-for-one swap, the monetary value of a shareholder’s position would remain roughly the same.
Short-term, the obvious trade here is the buy these three stocks the momentum they will gain on the American bourses (but I would wait if you did not buy premarket and see if the stocks drop midday).
However, this sudden reversal, particularly in a time of uncertainty in the U.S. markets amid rising coronavirus cases and a Senate runoff race which will determine just how much Biden and the Democrats will be able to accomplish—including raising taxes. Longer-term, the fate of Chinese stocks is shrouded in mystery until Biden takes power and pursues a China strategy of his own.
What it means for the American system
The sudden reversal by the NYSE is bad news in a way, and only adds to the perception that the United States is a confused country, one at war with itself and one not ruled by law. This perception has, of course, resulted from Trump's actions. From reversing course on the Obama administration's Iran nuclear deal to refusing to accept the elections results, Trump has eroded faith in American constancy and predictability, elements that have long served to woo global investors to its markets. A countless number of Trump executive orders have either been disregarded or massaged by the lower elements of the beaucracy--or thrown out by a judge. All of this messages to the world that the American system is broken, and that its markets--like its democracy--are increasingly unrelaible.
While the decision not to delist is the right one, the fact that the NYSE would suddenly thwart Trump’s executive order might do damage to President-Elect Biden and the power he (and future presidents) will be able to wield in the name of protecting investors and punishing economic rivals.
Trump was right instinctively that a rising China is something to be feared and fought, but his ad hoc attacks on select Chinese companies played out more like a game of whack-a-Mole than a thoughtful long-term strategy of cooperation and containment with what will soon be the world’s largest economy. Biden, should be able to devise such a more reasonable and effective strategy, might look back to this event as the moment when his executive power to implement said strategy was seriously curbed.