© Reuters. FILE PHOTO: FILE PHOTO: The China Telecom company logo is displayed at a press conference in Hong Kong.
By Samuel Shen and Tom Westbrook SHANGHAI / SINGAPORE (Reuters) – Asian and European investors are taking over discounted Chinese stocks that were hit by the US investment ban outlook. Swiss investment bank UBS said clients were interested in taking advantage of the sale. In a week in which Vanguard and BlackRock (NYSE 🙂 announced divestments, cash has poured in to lift Hong Kong-listed Chinese telecoms stocks by more than 15%. China Mobile (NYSE 🙂 is heading for its best week in nearly 12 years. State oil company CNOOC (NYSE 🙂 Ltd was up 16% and chipmaker SMIC 10%. All three are subject to sanctions and have been, or risk being, removed from global indices. The flows and price movements point to deep faith abroad and especially at home in the value of the 35 Chinese companies and subsidiaries that Americans are banned from owning after November 2021. It also raises questions about how painful the sales will be. sanctions. “I think it’s worth monitoring the market closely these days because it will trigger forced sell-offs,” said UBS Chinese chief strategy officer Wendy Liu. “We have European investors interested in stocks included in the US blacklist” US funds are struggling to sell following a November order from President Donald Trump prohibiting the purchase of companies believed to have ties to the Chinese military . He clarified Wednesday that the ban extends to the ownership of shares. Passive investors are also responding to the removal of more than a dozen companies from the benchmark indices compiled by MSCI, Russell and S&P Dow Jones Indices. Vanguard and BlackRock have given few details of their divestitures and have not detailed exactly which shares they have sold. Vanguard has said it has sold to comply with the rules and BlackRock said its index funds have responded to the index changes. “The opportunity exists now,” said Portfolio Manager Dave Wang at Singapore’s Nuvest Capital, which has increased exposure to state-owned companies in the construction and energy sectors in China since the US sanctions were announced. “The earnings outlook is trending up, while the valuation has been depressed and a lot of pessimism has been discounted due to the (US) listing.” HOME BUYERS Support for sanctioned companies appears to be strongest in China, where brokers have issued buy recommendations and some retail investors cited patriotism along with earnings as a purchase motive. Ding Ning, a retail investor at investment website Xueqiu.com, estimates that China Mobile already offers a good dividend and “taking into account the potential valuation fix, supporting the country’s share prices would yield good returns “. Cash flows to Hong Kong from the mainland hit record levels this week, as Chinese investors bought sanctioned companies listed there. Mainland China’s holdings in China Mobile, China Unicom (NYSE :), China Railway Construction Corp and CNOOC have more than tripled since the companies fell under the scope of the sanctions, among other strong inflows to affected stocks. But even though stocks have rallied, prices are still lower than before the companies were sanctioned, and they face more months of sales and loss of access to the world’s deepest pool of capital. There is also a lot of uncertainty surrounding the details of the rules. But US fund managers say investors are taking no chances. “The prevalence of US companies along the financial supply chain means liquidity will run out,” said David Loevinger, California-based managing director of the emerging markets group at asset manager TCW. “This is forcing investors to sell now while they still can.” And that means choosing your time before November to shed the sanctioned sections of your exposure to the world’s best-performing big economy. “I think the fundamentals are not changing. They remain strong,” said Paul Sandhu, director of multi-asset quantitative solutions in Asia at BNP Paribas (OTC 🙂 Asset Management in France. “The burden of these sanctions has really fallen on US investors.”