U.S.-listed shares of China-based companies tumbled on Friday over concerns that the White House is weighing limits on U.S. portfolio flows into China, a move that could affect Chinese stocks held in U.S. indexes.
President Donald Trump's administration is considering delisting China-based companies from U.S. exchanges and limiting Americans' exposure to the Chinese market through government pension funds, according to people familiar with the internal deliberations.
The discussions are occurring as Washington and Beijing negotiate a potential truce in their trade war that's rattled the world's two biggest economies and investors for more than a year. They also come as China is removing limits on foreign investment in its financial markets.
Investors bemoaned the news, which they said exacerbated a trade war that has roiled equity markets for months. The move also comes at a critical juncture as China is removing limits on foreign investment in its financial markets.
"To say 'We're closing the gates, you can't invest your money outside U.S. borders,' it's just ludicrous," said Jennifer Ellison, principal at San Francisco-based Bingham, Osborn & Scarborough. "The market is a little tired of it."
Among the most notable Chinese companies traded in the U.S., Alibaba Group Holding sank 5% on more than double the three-month average trading volume. It had been little changed Friday prior to the report.
JD.com Inc. lost 6%, also turning abruptly lower following the news. Baidu Inc. fell 3.7% and Huya Inc. dropped 9.4%.
"You want to see free capital flows, and if you start doing this kind of thing it just screws up the mechanics, it really does," said Michael Mullaney, director of global market research at Boston Partners. "Things are going to get squeezed."
China's foreign minister hit back at Trump's trade policies at the United Nations on Friday, warning that protectionism could plunge the world into a recession just as negotiators from both countries prepare to meet in Washington next month.
Foreign Minister Wang Yi, speaking from the UN General Assembly rostrum days after Trump used the same setting to criticize China's trade practices, said that "tariffs and provocations of trade disputes" are upsetting the global industrial and supply chain and risk undermining the "global economic and trade order."
"China will not ever be cowered by threats, or subdued by pressure," Wang said. "Erecting walls will not resolve global challenges, and blaming others for one's own problems does not work."
Hundreds of Chinese businesses have been added to Morgan Stanley Capital International Inc.'s indexes since last year -- raising questions from Sen. Marco Rubio, R-Fla., and others on Capitol Hill who are advocating for stronger investment restraints and greater scrutiny for Chinese companies in stock indexes and U.S. pension funds.
The fresh momentum behind the effort is partly due to a push from lawmakers to demand reciprocity with Beijing and a pending deadline for the government's main retirement savings fund -- administered by the Federal Retirement Thrift Investment Board -- to channel billions of dollars into Chinese companies next year, according to several sources involved in the discussions.
The National Economic Council has been chairing meetings on the issue and the Treasury Department and National Security Council are involved as well, the sources said. While action is not imminent, according to the people, Trump's advisers are talking through the various options and their expected effects.
The push to unilaterally limit Chinese access to American capital is spearheaded by White House trade adviser Peter Navarro, who has recommended hawkish measures on China, and officials at the National Security Council, but people involved in the process say even more dovish advisers have rallied behind some of their suggestions. A security council spokesman and Navarro declined to comment. Spokesmen for the White House and the Treasury Department also declined to comment.
Information for this article was contributed by Vildana Hajric, Jenny Leonard, Shawn Donnan, Saleha Mohsin and Mark Tannenbaum of Bloomberg News.
Business on 09/28/2019