This has the potential to trip up businesses and investors at home as Chinese firms move to other countries for capital. The Holding Foreign Companies Accountable Act is the name of the bill and it aims to address the issue that US securities regulators have with Beijing. It’s been an ongoing feud for decades which has seen Beijing refuse to allow audit inspections of their companies.
If it becomes law, Chinese companies will be required to comply with the rules or face being delisted.
This would put US$1.3 trillion of US-listed Chinese firms, including behemoths Alibaba Group and Tencent, at risk of losing access to the world’s largest capital markets.
Policy watchers and investors, however, said domestic businesses and investment funds could become unintended victims if Chinese companies begin to leave the US as a result.
“While it is going to hurt China, is it going to hurt it enough for the government to agree to the changes? That is unclear,” said Anna Ashton, senior director of government affairs at the US-China Business Council.
Disowning Chinese stocks is not an option.
Rory Green, China Economist at TS Lombard, a New York-based research firm says: “In the current market, with tech outperforming, it’s almost impossible for fund managers to match or outperform the MSCI China [Index] if they do not own companies like Alibaba, and to a lesser extent Baidu, NetEase and JD.”
According to the South China Morning Star: allocation to Chinese American Depositary Receipts (ADR) among active emerging markets funds increased 10 points from a year ago to 35 per cent in April.
However, these changes mean scrambling to maintain similar exposure to these companies as listings are removed or moved to different exchanges.
This is according to David Semple, a portfolio manager at US$1.9 billion VanEck EM Equity Strategy funds in New York.
Semple had 41 per cent of his funds’ portfolio in Chinese companies – including Alibaba and Tencent – as of May 31.
China has been the single largest country of exposure in his investments.