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Potential Implications of a Wider Chinese Stock Blacklist

08 January 2021   |  

In November 2020, US President Donald Trump signed an executive order prohibiting US investors from investing in a group of Chinese companies. The targeted companies are believed to supply and/or support China’s military. Subsequently, there have been media reports of the US government potentially adding companies to the blacklist. Most recently, media reports indicated the US government was considering adding Alibaba and Tencent

Alibaba and Tencent are among China’s largest publicly traded companies; the combined market cap of the two exceeds $1 trillion. If the tech companies were added, we believe outflows from passive investment vehicles alone could exceed $45 billion per company (across US and ADR listings). Blacklisting Alibaba and Tencent could be seen as a sharp escalation on the US’s part and risk further deterioration in US-China relations.

The investment sanctions are set to take effect January 11, 2021. The New York Stock Exchange, MSCI, FTSE Russell and S&P Dow Jones are in the process of delisting companies or removing them from their respective indices. We believe the US government is unlikely to add any major companies to the investment blacklist at such a late stage. At this time, we believe nothing substantial changes in terms of the November executive order unless President Trump issues another executive order. We currently view such additional action as unlikely.

We are also closely following a separate executive order issued by President Trump on January 5 prohibiting the use of Chinese mobile payment apps (e.g., Alipay and WeChat Pay) in the US. The executive order is set to take effect after the next administration takes office. How President-elect Joe Biden handles this executive order could provide an early indication of how US policy and relations with China may change under his administration.

We are hopeful that tensions between the US and China will deescalate to some extent, providing a greater degree of clarity and certainty for investors.

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