Chinese companies have begun to seriously consider listing their companies in the Hong Kong Stock Exchange as opposed to the U.S. Stock Exchange as trade tensions between the U.S. and China grow stronger.
As Chinese companies begin to fear that President Donald Trump will try to shut Chinese companies out of capital markets, they have begun to see the Hong Kong Stock Exchange as a viable option. This is despite the fact that, since 2013, 101 Chinese listings in the U.S. have raised nearly $46.1 billion dollars.
“Between the offshore markets – Hong Kong versus the US – the future direction seems to be pointing more in favor of Hong Kong. I think, particularly for those Chinese companies where they have significant political risks embedded in their business model, Hong Kong seems to be a more logical choice,” said Bao Fan, the chairman and chief executive of investment bank China Renaissance Group.
Some companies have already started making the move. SMIC, China’s largest chipmaker, withdrew from the U.S. Stock exchange last month after 15 years. Alibaba is said to be considering a second listing in Hong Kong.
“I think, fundamentally, Chinese companies listed in the US are thinking about a mechanism where they can get more Chinese investors to invest in their stock. If you have secondary listings or even third listings closer to the home market, it'll be helpful,” said Bao.
Others warn that the U.S.’ actions can have a long-term effect on the viability of the U.S. Stock Exchange.
“That’s what companies want. They want stability, they want liquidity, as do investors. If you’re going to put that into question, ultimately, you’re going to create the dynamic where you’re going to get a competitor somewhere in the world,” said James Finch, clinical associate professor of finance at New York University’s Leonard N. Stern School of Business.