US-China tensions escalate: delisting of Chinese companies?

Our Emerging Markets Equities team discusses potential scenarios for the delisting of Chinese companies from US exchanges because of rising US-China tensions.

01 Jun 2020

This is a manageable risk as, even if it were to go ahead, it would take a few years to be implemented, and companies have time to react.

Worst case scenario: Chinese companies do get delisted after three years of non-compliance. By then, it is believed that most of the American Depositary Receipt (ADRs) should be able to list in Hong Kong. Hong Kong would benefit from increased flows. Alibaba has already listed in Hong Kong last year, in addition to their ADR share class in the US, and other companies are preparing similar plans. While this might mean that a subset of US investors might no longer be able to buy these stocks – southbound investors from China would now have access to them through the Stock Connect programs.

Best case scenario: this is more of a national security and disclosure issue and an agreement can be reached between the US Securities and Exchange Commission and the China Securities Regulatory Commission (CSRC) on audit procedures.

Geopolitical risks are an ever present reality of investing in Emerging Markets. 

However in the long run most geopolitical events have proven not to have any meaningful lasting impact on markets beyond the short term. 

That is not to say that none do however – and the trade and tech related conflict between the US and China is certainly a major risk factor that we need to monitor. 

We continuously assess the situation to manage the macro risks in our portfolios and make changes as required. Our focus remains on identifying quality companies that can withstand difficult times and outperform the market and their peers over the long term.


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