Thursday, February 2, 2023

Alibaba, Tencent shares slide as US considers investment ban

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Alibaba Group Holding Ltd. and Tencent Holdings Ltd led a tech stock sale as the Trump administration plans to ban investments in China’s two most valuable companies.

Alibaba fell more than 5% and Tencent fell to 4.4% Thursday in Hong Kong, following losses in their New York-listed securities. The State Department, the Defense Department and the Treasury Department are among the authorities involved in the deliberations, according to people familiar with the discussions. Discussions focus in part on how such a measure could affect financial markets, the Wall Street newspaper reported earlier Wednesday.

Imposing a ban on the two companies would mark the most dramatic escalation to date by President Donald Trump’s administration, given the size of the two companies and the difficulty in unwinding positions. At $ 1.3 trillion, the combined market value of their primary listings is nearly twice the size of the Spanish stock market, while the companies together account for about 11% of the benchmark’s emerging markets weighting. MSCI Inc.

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“If the bans are implemented it would be a huge thing for the market,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. “It is still too early to tell. After the start of the Biden administration, politics could change again. “

If implemented, the ban would further unravel relations between the world’s two largest economies, which have clashed for everything from COVID-19 to Hong Kong. Authorities in Washington have stepped up efforts to deprive Chinese companies of U.S. capital in the final months of the Trump administration, adding to economic tensions as President-elect Joe Biden prepares to take over this month.

Representatives of the companies did not make any immediate comment when contacted. Spreads on Tencent’s dollar bonds widened by up to 20 basis points against T-bills on Thursday, while those on Alibaba’s notes were about 15 basis points wider, traders said. in credit. The ecommerce company forecast a sale of dollar bonds that could raise up to $ 8 billion as early as next week, which could now be threatened by US stocks. Inc. fell 4.1% in Hong Kong, after a 7.7% drop in its ADRs. Pinduoduo Inc. fell 5.6%. The closely watched iShares China Large-Cap ETF fell 1.2% in the US, while the NASDAQ Golden Dragon China index, which tracks other major Chinese tech stocks, fell 2.1% for its worst day since November.

Citing national security, Trump previously signed an executive order in November demanding that investors pull out of Chinese companies linked to that country’s military. On Tuesday, Trump signed an order banning U.S. transactions with eight Chinese apps, including Ant Group Co. and Tencent’s Alipay digital wallets. It will be up to Biden to decide whether or not to apply this policy once it takes effect.

Hasty measures have sometimes confused markets and caused price swings, such as when the New York Stock Exchange reversed course twice this week on the decision to delist three Chinese telecommunications companies. The NYSE is now proceeding with its initial delisting plan after US Treasury Secretary Steven Mnuchin disagreed with his decision to grant a stay of business.

The ordinance prohibits the trading of the securities concerned from January 11. If Biden leaves Trump’s executive order in place, U.S. investment firms and pension funds would be required to sell their holdings in firms linked to the Chinese military by November 11. The United States determines that other companies have military ties in the future, American investors will have 60 days from this decision to divest.

“We see the telecom companies and ADRs as kind of a worst-case scenario because there is so much confusion,” said Nicholas Turner, attorney at Steptoe & Johnson LLP in Hong Kong, specializing in economic sanctions. Even if Alibaba and Tencent fend off a delisting threat, US investors will still not be allowed to buy a wide variety of financial instruments exposed to their securities, he added.

Potential US ban comes as pressure mounts in China Jack MaAlibaba and Tencent. In recent months, officials have blocked Ant Group’s $ 35 billion IPO, proposed new rules to curb the dominance of internet giants, and fined Alibaba and Tencent for previous years’ acquisitions. . A closer look at mergers and acquisitions could add uncertainty to the growth of large internet companies in China.

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