Investors continue to shift more of their holdings of U.S.-listed Chinese technology companies to listings on the Hong Kong Stock Exchange on concern that the Chinese stocks might be delisted in the U.S.
The ongoing shift from U.S. exchanges to Hong Kong shows traders are continuing to hedge their risks associated with the U.S.-China auditing spat, whereby the U.S. warns it will delist Chinese stocks from U.S. exchanges if they don’t comply with U.S. auditing rules. The U.S. and China have reportedly reached a preliminary auditing agreement but the U.S. has been conducting auditing checks to see if China will fully comply.
According to Bloomberg calculations, about 81% of JD.com’s (JD) shares were circulating in Hong Kong’s settlement system as of Wednesday, up from 44% at the end of 2021 as investors moved to convert them from U.S. exchanges. Also, shares of Alibaba Group Holding’s (BABA) Hong Kong-listed share portion rose 11 percentage points during the same period.
GAM Investment Management said, “as an investor, we feel there is less uncertainty if we choose Hong Kong shares,” so we now buy the Hong Kong listing of Chinese stocks we like rather than the U.S. listing. “The big trend is for Hong Kong to become the hub for Chinese stocks.”
The preference for Hong Kong stocks is already showing up in trading activity. For example, the average trading volumes of Hong Kong-traded shares in Alibaba Group Holding have jumped to 28% of its total volume this month, while trading volume in JD.com has surged to 46%.
The issue of where Chinese tech companies trade is critical since Chinese technology stocks are likely to get a boost if China gives up its strict Covid Zero policies. Yet Morgan Stanley says that U.S. investors have mostly avoided Chinese stocks as U.S. fund managers were net sellers among mega-cap Chinese technology stocks recently, while non-U.S. fund managers remained net buyers. The head of Asia Pacific equities at Robeco said that valuations of the Chinese technology sector “are looking a lot more attractive, but we expect them to be volatile.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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