International funds, including Temasek, Baillie Gifford and Matthews Asia, are converting their Alibaba ard holdings into Hong Kong stocks to avoid potential US sanctions and delisting of large Chinese technology stocks from the US. Securities analysts in Hong Kong believe that the direction of US policy is difficult to predict, and international funds have to transfer their positions in Hong Kong to cope with future or unexpected risks. Dong Dengxin, director of the Institute of Finance and securities of Wuhan University of science and technology, believes that the conversion of ADR into Hong Kong shares is a new trend of international funds.
Singapore’s Temasek has swapped about $3 billion of U.S. stocks for Hong Kong stocks, Baillie Gifford of the UK converted about $2.67 billion worth of Alibaba ADR in the second quarter, and Matthews Asia of the United States sold $700 million of Alibaba US shares in the second quarter, some of which were converted into Alibaba’s Hong Kong shares.
Not only the three international funds mentioned above, but according to the information of an executive of Yixin wealth management (Hong Kong), many long-term funds, especially those in Asia, are or are considering converting Alibaba’s American Depository Receipts (ADRs) into their Hong Kong listed shares.
The United States is putting pressure on China capital stocks. If China and the United States still fail to reach an agreement by the end of 2021, China capital stocks may face the risk of delisting from the United States. He believes that “although the US policy is still difficult to predict the direction of the wind and is vague, it has aroused the high attention of the capital market. From the perspective of risk diversification, it is also necessary for investors to transfer part of their US ADRs to Hong Kong first.”
Alibaba has been listed in Hong Kong and New York in November 2019, which makes it possible for US stock holders to convert their ADRs into Hong Kong shares through brokerage banks. In the future, with more secondary listing of China capital stocks in Hong Kong, there will be more and more investors converting American shares into Hong Kong shares.
Markets are waiting for the outcome of the US presidential election in November to see if there will be a change in US policy. “Now, there are all kinds of possible policies of the United States in the future. Those international funds with a large amount of capital in China capital stocks can’t wait for the day when the risk comes to rush.”
International investors’ sub positions have drained funds from the United States into Hong Kong’s capital market. On August 24, Alibaba’s shares, which are listed in Hong Kong, rose 4.6%. There is no doubt that this will increase the trading volume of Hong Kong and enhance the activity of Hong Kong’s capital market, which will attract more external capital inflow.
The inflow of funds into Hong Kong means outflow to the NYSE. “Some trading volume in the New York market may disappear because some large-scale high-frequency transactions can’t come to Hong Kong with the station.” Lin Jiaqi, director of Hong Kong Honghui asset management, also said that the transfer of international funds to Hong Kong would be beneficial to Hong Kong stocks as a whole.
U.S. Treasury Secretary mnuchin said on August 10 that by the end of 2021, listed companies from China and other countries that do not comply with us accounting standards must delist from the US stock exchange. Subsequently, the relevant person in charge of the China Securities Regulatory Commission responded to the accounting related issues that have been entangled in the United States, saying that China has never prohibited or prevented relevant accounting firms from providing audit working papers to overseas regulators. At the same time, the CSRC also said that open dialogue and cooperation is the right way to solve the problem. “
In case of secondary listing in the United States, the stocks that can be listed in Hong Kong can be converted into stocks prepared for secondary listing in the United States. Lin Jiaqi believes that the US side will not “across the board” ban China capital stocks from listing locally, and Alibaba is also complying with international accounting standards, so the real impact will not be too great.