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Chinese deal hunters are piling up stocks on Trump’s blacklist

SHANGHAI (Reuters) – As US investors stock up on Chinese companies blacklisted by outgoing President Donald Trump, hunters in China are taking the opposite side of the trade, betting that Joe Biden’s presidency will lift the investment ban.

PICTURE PHOTO: International Semiconductor Corporation (SMIC) logo seen at the China International Semiconductor Exhibition (IC China 2020) in Shanghai, China, October 14, 2020. REUTERS / Aly Song

Trump signed an executive order on Nov. 1

2 banning the investment of U.S. securities in Chinese companies that are said to be owned or controlled by the Chinese military.

The outgoing US president is considering expanding this blacklist of 35 companies to include Alibaba and Tencent.

As US investors rush to sell shares in the sanctioned companies and their subsidiaries before the executive order takes effect on January 11, Chinese investors are invading.

Following the announcement of the order, the participation of the mainland Chinese in the shares of China Railway Construction Corp (CRCC) and CNOOC Ltd, registered in Hong Kong, has tripled approximately three times, according to the stock exchange operator Hong Kong Exchanges and Clearing Ltd.

Other stocks on the blacklist, including rail equipment maker CRRC Corp., China Communications Construction Co. and semiconductor giant SMIC, have also seen a large influx of money.

Zhu Haifeng, a veteran Chinese retail investor, said he was trading in CNOOC and CRRC, both of which lost up to 27 percent of Trump’s order.

“They are globally competitive companies and are China’s ‘business cards,'” said Zhu, who sees limited impact on the foundations of US sanctions companies.

Wang Chengshui, a portfolio manager at the Hangzhou-based Golden Eagle Fund Management Co., said he plans to increase his holdings in Tencent if prices continue to fall.

“Trump is politicizing everything in the name of national security. “When Biden takes office, I think things will get better,” Wang said, predicting that Trump’s executive order would be overturned and sanctions against Tencent and Alibaba would not be enforced.

One is not alone.

When Tencent fell nearly 5% in Hong Kong after news of a potential blacklist on Thursday, Chinese investors invested $ 4.6 billion ($ 593.29 million) in their shares through a cross-border trading channel, making it the most actively traded shares under the scheme that day.

The publishers of global indices MSCI, FTSE Russell and S&P Dow Jones Index are fighting to delete the blacklists of securities from their global criteria, forcing passive investors to give up these shares.

Philip Wool, head of investment solutions at Rayliant Global Advisors, said investors could find lucrative offers as active investors dumped shares at a pre-passive outflow.

“Non-US investors will look at the prices of these stocks, which are falling, and at some point will decide that this is an opportunity to buy,” Wool said.

Uncertainty, meanwhile, remains around the scope and implications of Trump’s executive order, while gradually expanding the list is another guessing game, Wool said.

Therefore, “there is also a potential opportunity for active investors in terms of overcoming the rest of the market on how the political situation will develop.”

After making twists twice this month on the issue, the New York Stock Exchange said Wednesday it would delist three Chinese telecommunications companies.

After the first announcement of the NYSE to write off on January 1, Chinese investors are relentless buyers. Continental holdings within Connect in China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd jumped 37%, 28% and 41% respectively.

($ 1 = 7.7534 Hong Kong dollars)

Report by Samuel Shen and Andrew Galbraith; Edited by Vidya Ranganathan and Kim Kogil

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