Alibaba Group will announce its June quarter 2020 results on August 20, 2020.
(Bloomberg Opinion) -- The U.S. threat to delist Chinese companies just got a lot more real. Yet businesses from Asia’s biggest economy continue to line up to sell shares on American exchanges — and are thriving. What’s going on?The President’s Working Group on Financial Markets has told U.S. exchanges to set rules that would require companies to grant American regulators access to their audit work papers, something that China has refused to allow. Firms already listed will have until Jan. 1, 2022, to comply, with removal from U.S. exchanges the ultimate penalty. Those seeking to sell shares will need to adhere to the new rules, according to the high-powered group of U.S. regulators, which includes Treasury Secretary Steven Mnuchin.You might think this ratcheting up of pressure, which reflects increasing geopolitical tensions and the fallout from accounting scandals at Chinese companies such as Luckin Coffee Inc., would put a damper on the rush of enterprises looking to go public. Anything but. Almost every day, it seems, another Chinese company announces plans to list in the U.S. — and they’re finding no shortage of takers. Late last month, Beijing-based electric-car maker Li Auto Inc. raised $1.1 billion selling shares in an initial public offering that priced above the marketed range. It was the biggest IPO by a Chinese company in New York since Shanghai-based rival NIO Inc. sold $1.15 billion of stock in September 2018. Xpeng Motors, based in Guangzhou, is poised to follow this month.Shares of U.S.-listed Chinese companies are also outperforming the broader market. The Nasdaq Golden Dragon China Index has surged 30% this year, compared with a 3.7% gain for the S&P 500.The phenomenon may be partly the product of a craze in day-trading fueled by pandemic lockdowns, which have left many Americans stuck at home looking for amusement. If the Robinhood crowd can drive shares of bankrupt companies to illogical heights, then why not Chinese stocks, too?On a more rational level, some investors may be betting that threats to delist Chinese companies are largely noise, and a compromise will eventually be worked out. Chinese listings are a gravy train for the New York Stock Exchange and Nasdaq, and both sides have a financial interest in ensuring that it doesn't get derailed.On this point, it’s worth noting that the U.S. regulators left some wiggle room. Chinese companies can hire a “co-auditor,” effectively having a second inspection performed by a U.S. accounting firm after a Chinese affiliate does the first. That would be a potential workaround for Beijing’s rules that prevent the Public Company Accounting Oversight Board from reviewing audits of U.S.-listed Chinese companies.To count on peace breaking out may be rash, though. There’s plenty of evidence that the move toward a U.S.-China decoupling is serious and tangible. Just look at the lengthening list of U.S.-traded Chinese companies that are selling shares in Hong Kong, giving them a secondary outlet into international capital markets in the event that they are forced to leave: Alibaba Group Holding Ltd., JD.com Inc. and NetEase Inc. among them.Or witness Tencent Holdings Ltd., which lost $30 billion of market value in Hong Kong on Friday after the Trump administration moved to ban U.S. residents from doing business via its WeChat app. It will be a brave investor who bets on this trend reversing itself. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Over the past decade, it’s almost been too easy for Americans to manage their wealth. A textbook 60/40 portfolio — in its simplest incarnation, exposure to the S&P 500 Index and Treasury bonds — was an effortless winner. The U.S. boasted the world’s best stock market, and bonds, apart from offering interest income, provided a nice hedge against equity risks.Now we live in extraordinary times that demand a reshuffle. Swapping out some bonds for gold and some U.S. technology stocks for Chinese ones could offer a better hedge: Both can be considered credit default swaps against President Donald Trump’s chaotic policymaking. You could argue that the wreckage left by Covid-19, combined with what’s quickly shaping up to be a cold war between the world’s two largest economies, is the closest we’ve come to World War III. And just like wartime episodes of the past, we’re seeing disrupted global supply chains, border lockdowns and restricted movements in labor. War is inflationary. The cheap car parts made in China’s inland city of Wuhan can no longer land in the U.S., and your French wine could cost more as transportation logistics get trickier. Moreover, the Federal Reserve has been flooding its financial system with cash. In just three months, assets held by the central bank ballooned by two-thirds, to almost $7 trillion. To make matters worse, the Fed is mulling a more relaxed stance toward inflation, ready to abandon preemptive rate hikes — even though consumer expectations have been ticking up since May. As I’ve argued in a recent piece for Bloomberg Businessweek, bonds are no longer effective equity hedges in an ultra-low-rate world that faces inflationary pressure; gold can do a better job. But after a neck-breaking rally, it’s natural to ask if we’re already too late to the game. History can be our guide. After the collapse of Lehman Brothers in 2008, gold broke out and continued marching higher until September 2011, even as Tea Party belt-tighteners took control of the national narrative in the 2010 midterm election. A decade on, the Republican Party’s libertarian wing has all but disappeared, and is replaced by a cross-the-aisle nod to modern monetary theorists, who brush aside fiscal austerity. The Tea Party is no longer here to sour the gold rally. Meanwhile, since we’re at war, might it be smart to hedge against the possibility of losing? This cold war isn’t over a plot of land or sea, but domination over next-generation technology. The U.S. has the absolute advantage now, with chip and robotic designs far ahead of China’s, but that edge is slipping away. While Washington is wrangling over trillions of dollars of stimulus to fend off a recession caused by waves of coronavirus outbreaks, China, which has the pandemic relatively under control, is only strengthening its tech resolve. For Beijing, it’s killing two birds with one stone. The $1.4 trillion hard tech invesment is the nation’s new fiscal stimulus package. Instead of building more roads to nowhere, China is installing 5G base stations.It’s high time to consider diversifying from U.S. stocks, anyhow. There have been nagging worries about the market being on a tear even with the economy in the dumps. Meanwhile, Big Tech has become too dominant, with the top five mega-cap names now accounting for more than 20% of the S&P 500 and its entire gain this year. This might help explain why mainland firms that recently went public in New York are outperforming their U.S. counterparts, despite the Trump administration’s attempt to delist China Inc. Now, I am not advocating that investors plow their money into China’s big tech companies, because they face the exact same problems that U.S. Big Tech has — overbought stocks and impossible expectations. This year’s passive flows only worsened the concentration risk of benchmark indexes. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. account for a third of the MSCI China Index and about 14% of the MSCI Emerging Markets Index. Rather, investors should do their homework on smaller hard-tech companies. The truth is, once you identify a promising tech seedling, it doesn’t take a venture capitalist’s patience to watch it blossom. India’s Reliance Industries Ltd. joined the Century Club — stocks with over $100 billion market cap — in just three months. Tencent is another example of a melt-up. Good wealth management is all about diversification. If you’re unsure of Trump’s wartime strategies, add some of gold and China exposure to your portfolio. (Adds details on concentration risk of China’s big tech companies in the 11th paragraph.)This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.