US funds ignore China tiff, turning to world’s second-largest economy to solve a trillion dollar problem: where to find yield

The average value of new listings by Chinese companies rose 204 per cent last year in the United States, outpacing the 49.6 per cent gain by American IPOs or the 30.9 per cent increase among European companies, according to Bloomberg’s data

American investors owned US$813 billion worth of stocks and bonds issued by mainland Chinese companies at the end of 2019

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Published: 10:00am, 6 Feb 2021Updated: 8:56am, 8 Feb 2021

In the first of a two-part series on global capital flows, Jodi Xu-Klein reports on how American institutional investors and fund managers are looking beyond the lowest point of US-China relations to pour their funds into Chinese stocks, bonds, exchange-traded funds and other assets in search of higher returns in an age of zero interest rates. Click here for the second part.

On January 22, two days after a new occupant was sworn into the Oval Office, a Beijing-based provider of vaping products and e-cigarettes started trading on the New York Stock Exchange, the first Chinese company to tap Wall Street for funds even as US-China relations deteriorated to their worst point in decades.

Backed by Sequoia Capital in an initial public offering led by Citigroup, RLX Technology’s shares soared by as much as 158 per cent in their trading debut from their US$12 offer price before closing the day at US$29.51, valuing the three-year old start-up at US$46 billion, almost three-quarters of the market capitalisation of the century-old British American Tobacco.

RLX’s rise was barely a surprise. The average value of new listings by Chinese companies rose 204 per cent last year in the United States, outpacing the 49.6 per cent gain by American IPOs or the 30.9 per cent increase among European companies, according to Bloomberg’s data. Shares of BeiGene the drug maker soared 22 times since July while NIO the Tesla challenger tripled in value over six months.

“The US is just awash with liquidity, a lot of money sloshing around,” said Adam Lysenko, analyst of China’s international investment flows at Rhodium Group. “Investors are just going to keep investing in China until they can‘t any more.”

A store displaying RLX Technology’s vaping products under the RELX brand in a shopping centre in Beijing on January 22, 2021. Reuters

Flush with zero-interest capital unleashed by the Federal Reserve to bolster an economy wrecked by the coronavirus pandemic, US private equity funds, asset managers and pension fund investors had been making a beeline for China over the few months in search of yield.

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