China’s big telcos lose another US$1.5 billion of market value in sell-off on NYSE delisting plan despite late rebound

China Mobile and China Telecom lost a combined HK$12 billion in value in Monday’s sell-off while China Unicom rebounded from a 3.8 per cent slide
The trio lost HK$610 billion in market value in 2020

US-China relations

Lam Ka-sing

Published: 5:08pm, 4 Jan 2021

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China’s big telcos slumped in Hong Kong trading before a late buying support helped pare losses triggered by the New York Stock Exchange’s decision to delist their American depositary receipts from later this week.

Investors dumped China Mobile, China Unicom and China Telecom in Hong Kong in early trading on Monday on concerns the NYSE action would force investors to convert their ADRs into those traded in the city to comply with a US executive order.

The stock slump wiped out about HK$12 billion (US$1.5 billion) of market value from China Mobile and China Telecom at the close of trading. China Unicom, however, rebounded from as much as a 3.8 per cent slide. The trio saw their combined market value shrink by HK$610 billion in 2020.

President Donald Trump issued an executive order in November banning US investors from owning or trading in 35 Chinese companies linked to the Chinese military. The Treasury Department last month clarified the scope of the ban on US investors and defined the prohibited assets to include their majority-owned or controlled subsidiaries.

Major index compilers including MSCI, FTSE Russell and S&P Dow Jones Indices have reacted by removing some of the blacklisted constituent stocks and bonds from their global benchmarks.

“It is better not to place any bet” on these blacklisted stocks for now because of the big selling pressure, said Sam Chi-yung, chief strategist at Plotio Securities in Hong Kong. “Those who are looking for a quick rebound should control their risk [appetite].”

China Telecom dropped 2.8 per cent to HK$2.09, the lowest level since March. China Mobile shed 0.8 per cent to HK$43.85, approaching a level not seen since June 2006. China Unicom gained 0.4 per cent to HK$4.47. They all lost more than 30 per cent in 2020.

China Securities Regulatory Commission on Sunday described the move as politically motivated, adding that the ADR delisting will have minimal impact on the telecoms’ operations. China Mobile, China Telecom and China Unicom expressed regret over the NYSE action.

Funds managed by Bank of America, Morgan Stanley, Norges Bank, Lazard, Rockefeller Capital Management, and Royal Bank of Canada are listed among the biggest investors in the three Chinese telecoms companies, according to data compiled by Bloomberg.

The delisting announcement also infected other Chinese stocks, notably the nation’s biggest oil exploration companies. CNOOC slid 1.8 per cent per cent to HK$7.05, while PetroChina was unchanged after losing as much as 2.9 per cent.

CNOOC slumps as new US sanctions seen crippling its international operations

Although the executive order could be repealed by President-elect Joe Biden after he takes office, “we do not anticipate there will be enough political appetite to do so at the beginning of his term,” analysts at T. Rowe Price said in a report last month.

NYSE said it will remove ADRs issued by the three telecoms between January 7 and 11 to comply with the executive order. US investors have up to November to liquidate their existing holdings in blacklisted firms.

Meanwhile, the lack of consensus on trade and political issues would be a concern for investors in the medium and long term, but there is a silver lining for Hong Kong with more companies considering a listing on the city’s exchange, said Wong Pak-ling, the head of investment strategy and portfolio advisory at Citibank Hong Kong.

“Will this cause even more passive assets to flow into Hong Kong? That’s for us to see,” Wong said in a briefing on Monday. “But when several well-known stocks listed in the middle of last year, market funds flowed gradually back to Hong Kong.”

Additional reporting by Jack Lau