Advertisement
Advertisement
Investing
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
The New York Stock Exchange will delist China Mobile and peers China Unicom and China Telecom from January 7 to comply with Trump’s executive order. Photo: AFP

China’s three telecoms operators face sell-off as New York Stock Exchange moves to delist their depositary receipts

  • NYSE announces plan to delist ADRs of China’s three big telcos to comply with a ban on so-called Communist Chinese military companies
  • Their ADRs and stocks have slumped up to 39 per cent in 2020 from the pandemic and US actions to restrict investment and trade involving blacklisted firms
Investing
The New York Stock Exchange’s decision to delist three Chinese telecommunications giants is likely to prompt investors to convert their holdings into securities traded in Hong Kong and stoke selling pressure on the city’s bourse, analysts said.
The move puts trading on the Hong Kong stock exchange under scrutiny after a year of steep losses as President Donald Trump ramped up action against several so-called state-controlled “Communist Chinese military companies” in 2020 in the waning days of his presidency. The move worsened US-China relations, already at an all-time low since the trade war, after curbs on Huawei Technologies to Semiconductor Manufacturing International Corp.

The US exchange will remove American depositary receipts (ADRs) issued by China Telecom, China Mobile and China Unicom some time between January 7 to 11 to comply with Trump’s November 12 executive order, according to a statement late on Thursday. A Treasury Department clarification last week defined the scope of the ban on US investors and the prohibited assets of the blacklisted Chinese firms and its units.

“Their securities have already fallen a lot since the executive order was first announced, especially in China Mobile’s case,” said Louis Tse Ming-kwong, managing director of Wealthy Securities in Hong Kong. “News of their delisting in the US is merely another step in the process, which the market had already anticipated.”

The ADRs, which represent the telcos’ ordinary shares, have lost about 40 per cent of their market value in New York last year. The ordinary shares in Hong Kong have also suffered the same fate, underperforming the broader market, as investors dumped them to protect their portfolio returns.

The average daily trading volume of China Mobile ADRs was 6.9 per cent of its H-shares in 2020, compared to 12 per cent for China Telecom and 9.9 per cent for China Unicom, according to Bloomberg data. Each of the ADRs represent five, 10 and 100 of the underlying ordinary shares, respectively.

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.

06:04

US-China relations: Joe Biden would approach China with more ‘regularity and normality’

US-China relations: Joe Biden would approach China with more ‘regularity and normality’

Still, the downside may be limited in the short term because most of the impact has already been priced in. Some non-US investors will be attracted by their low valuation, said Gordon Tsui, chairman of Hantec Pacific and president of Hong Kong Securities Association.

China Mobile has fallen 16 per cent in Hong Kong since the November 12 executive order, compared to a 4 per cent gain of the Hang Seng Index. China Unicom has declined 16.5 per cent while China Telecom has retreated 20 per cent.

“The key to their mid-to-long term valuation is their profitability outlook and dividend payouts, which are looking increasingly attractive after the sell-off,” Tsui added.

Funds from the European Union, which has just concluded “in-principle” negotiations for a Comprehensive Agreement on Investment with China that would give EU investors greater market access in China, may be among the bargain-hunters, according to Tse at Wealthy Securities.

Trump’s executive order would ban US investors from trading or owning securities of 35 blacklisted Chinese companies — 25 of them publicly traded in mainland China and Hong Kong — related to the Chinese military, indirectly funding such entities it deemed as a threat to national security. The US government has allowed investors up to November 11 to liquidate their holdings.

Wang Wenbin, a Chinese foreign ministry spokesman, said the move was politically motivated to stigmatise and discredit China’s policy of military-civilian integration. The decision will not only damage the interests of Chinese companies but also US and global investors.

Major stock and 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 to adhere to the executive order.

This article appeared in the South China Morning Post print edition as: US move to delist China telecoms firms may pressure HK exchange
19