Stocks Sink as Trump Threatens to Delist Chinese Firms

-edited

Hoping to force China to forge a trade deal to his liking, Trump threatens to delist Chinese firms from US exchanges.

Radical Escalation of Trade War

In what would be a radical escalation of the trade war, Trump Considers Delisting Chinese Firms From U.S. Markets.

President Donald Trump’s administration is considering the possibility of delisting Chinese companies from U.S. stock exchanges, a source briefed on the matter said on Friday.

The move would be part of a broader effort to limit U.S. investments into China, the source said

Shares of Alibaba Group Holding (BABA.N), JD.com (JD.O), Pinduoduo (PDD.O), Baidu (BIDU.O), Vipshop Holdings (VIPS.N), Baozun (BZUN.O) and IQIYI (IQ.O) fell between 2% to 4% in afternoon trading.

Analyst Reactions

Bloomberg reports ‘This Is Huge’ as China Threat Dents Markets: Wall Street Reacts

  • Jennifer Ellison, principal at San-Francisco based BOS: “This is not little stuff. This is huge. The cost of tariffs on the economy, the impact on growth around the world when you don’t have trade flowing, the potential impact of China getting really mad and looking at us and saying ‘You know those Treasury bonds you’re issuing? We don’t want so much of that anymore,’” she said. “There’s a lot more potential downside than there is upside when this is all resolved.”
  • Ed Moya, senior market analyst at Oanda: “Just like we saw in the previous lead-up to high-level talks in the past, the White House is trying to increase their negotiating chip count with a fresh threat that could cripple Chinese companies,” he said. “The limitation of American pension funds access to Chinese markets would see massive portfolio swings that spells disaster for the tech sector. This threat is harsh reminder that we could very easily see trade talks fall apart next month.”
  • Ed Al-Hussainy, a strategist at Columbia Threadneedle: “This one is a non-starter. Even this administration will have a hard time making the case for capital controls at this scale. Just another market burp.”
  • Alan Ruskin, chief international strategist at Deutsche Bank AG: “This policy risks reciprocity from China, where China is of course a much bigger player in U.S. portfolio markets, than the U.S. is in China. In general, headlines like this also suggest that U.S.-China relations remain extremely tense, so not a great sign on the state of the trade negotiations. These headlines help assets that do well in ‘risk-off’ like gold, Swissie and yen. The euro likely also benefits in part as China could in theory search for alternative liquid markets,” he said. “One important caveat to above is we need to see if these are just loose headlines with U.S. capital flows used as a bargaining chip, or whether the threat is real.”
  • Mike Collins, senior portfolio manager at PGIM Fixed Income: “It’s another example of how every time people think this trade war is deescalating, it escalates again,” he said. “We’re in this for the long run. There’s no end in sight.
  • Sebastian Janker, the head of the chief investment office for DB Wealth Management Americas: “The lack of details for implementation could signal that this is another negotiating tactic for the White House to use in the upcoming trade talks. It’s hard to imagine exactly how such a policy could be enacted without hurting existing investors,” he said. “Investors should monitor the price action in U.S.-listed Chinese companies as proxies for measuring the propensity of enacting this potential new regulation.”

Another Trumpian Bluff

I emphasized what I thought were the best comments. Mike Collins and Ed Moya are closest to my view.

These on again off again trade war disputes seem never-ending.

Jennifer Ellison missed the mark. This "isn't" huge, at least yet. But yes, it "would be" huge if Trump actually did it. The rest of Ellison's comments are nonsense. Any China treasury dumping play would backfire quickly, on China.

This is yet another obvious bluff by Trump.

China won't be fooled.

Mike "Mish" Shedlock

Comments (36)
No. 1-18
Matt3
Matt3

I doubt any of these companies actually adheres to financial reporting requirements. Who could enforce them? Why would anyone want to invest with the Chinese Communist Party?

2banana
2banana

Next up.

Loss of "favored nation status"

Removal from WTO.

Declassification of junior Biden's $1.5 billion China deal.

Just like the democrats, China has never dealt with a president who actually fights.

They still expect him to roll over and take it, like the last six presidents.

njbr
njbr

Wait...wasn't an agreement near..weren't markets up on that news yesterday/

The wheel spins faster and faster.

Have you ever seen a flywheel break apart?

thimk
thimk

assuming Trump is not bluffing and activates plan , how could Chinese retaliate? lets throw in the boatload of US$ denominated assets China now owns into scenarios . Hmmm

Cocoa
Cocoa

Dumping bonds would devalue the US Dollar and make Yuan go higher. So thats a dumb comment. They are already selling bonds when they can and trying to buy gold but that just accelerates the trade costs

abend237-04
abend237-04

I'm amazed at Ellison's comment. How does she think the trade deficit with China would be funded? Unless China could magically and instantly re-direct factory output elsewhere to new customers, driving Treasury purchases to zero will put millions of pissed off Chinese on the streets with no jobs.

The only certainty is that Trump has made China trade a third rail political issue that neither party can now walk away from.

I hope we can get adults in the room somewhere soon (WTO?) who recognize that all parties have an interest in fair, free trade.

ksdude69
ksdude69

Be better off delisting some people.

frozeninthenorth
frozeninthenorth

Interesting concept. Chinese companies listed on the US exchange to allow Americans to invest in Chinese companies...delisting will only hurt the investors. Very intersting spin -- BTW its not like Chinese companies are knocking at the door of US listing these days (well reputable ones at least -- assuming they exist)

Bam_Man
Bam_Man

This looks to be getting quite serious.

Country Bob
Country Bob

According to Chinese law, everything in China belongs to the communist party (or they can take anything they want at will).... so shareholders of Chinese companies don't really own anything anyhow. They are "tracking stocks" at best.

No different than the non-voting shares of Faceplant or WeFraud... except communists replace zuck or newman (seinfeld misspelling deliberate).

I don't know if delisting is the solution, but all these so-called "tracking stocks" are weird.

Sechel
Sechel

Great now Trump wants to limit our investment gains and limit our investment options. No fan of Chinese equities but that's for the individual to decide not the President. He could have taken the high road and simply worked to require higher accounting and auditing standards as a requirement for listing which might have accomplished some of the same goals but would have at least been a pro-investor step for us.

Mo-one
Mo-one

That's nothin, thimk. China only holds 3-5 $Trillion of our National debt, so calling the debt would only cause starvation of America's poor, not the rich.

RonJ
RonJ

“Investors should monitor the price action in U.S.-listed Chinese companies as proxies for measuring the propensity of enacting this potential new regulation.”

Investors should note that China is a communist country.

Thautikus
Thautikus

"Trump threatens to delist Chinese firms from US exchanges."

Mish, pardon my question, but how can American markets be even remotely considered 'free markets' if any President issue orders to delist any company.

Is this not fascism?

Thanks.

Augustthegreat
Augustthegreat

Mish are you trying to explain who is desperate to reach a trade deal?

Country Bob
Country Bob

@Thautikus -- can the President order delisting of any company?

It is not clear whether tracking stocks are considered "securities" under the law. The owner of a tracking stock has none of the legal rights associated with a security -- no right to future cashflows, no right to assets, no vote / authority to replace management or appoint board members. So tracking stocks are not securities, at least not as legally defined.

The law on tracking stocks isn't clearly defined at all. Tracking stocks are not really securities, and there is no legal precedent. Tracking stocks don't represent ownership of anything, so they are not legal property.

The president may not delist a security (without going through a court / legal proceeding). But it could easily be argued that a tracking stock should not have been listed in the first place, and the SECURITIES and Exchange Commission doesn't have legal authority over something that is not a security in the first place. Nor do securities exchanges (NYSE, etc).

Chinese "stocks" are not an ownership interest in anything, so they are not securities.

MorrisWR
MorrisWR

Alan Ruskin said good for the Yen yet the USD/JPY is up every day for the past 5. Luckily ai do not listen to bank analysts or I would not be holding my long USD bs Yen profit from last week.