The New York Stock Exchange will delist China’s three large telecom carriers, following a U.S. government order barring Americans from investing in companies it says help the Chinese military.
The NYSE decision is the latest setback for U.S. investors in these companies, which rank among the largest global telecommunications providers but have lagged behind the broader markets since the companies began listing here more than two decades ago.
U.S. shares in China Mobile, the largest of the three by market value, declined 29% over the past year, according to FactSet, while
China Telecom Corp.
dropped 30% and
fell 39%. Over the same span, the S&P 500 index returned 18% and the communications-services sector of the MSCI World Index rose 22%. All figures reflect total returns, including dividends.
Over the past decade, China Mobile shares have declined 15% including dividend payments, FactSet data show, while China Telecom has dropped 32% and China Unicom has fallen 54%. The S&P 500 has gained 267% on the same basis and the MSCI World communications sector has gained 165%.
The broader U.S. market impact of the delistings is likely to be limited, in part because large telecom companies haven’t been a hot part of the market recently and in part because these companies will continue to be traded in Hong Kong, where they are more closely followed by analysts and investors.
NYSE said, at the latest, that it would suspend trading in securities issued by China Mobile, China Telecom and China Unicom at 4 a.m. on Jan. 11. It will act four days sooner if it doesn’t get confirmation from the Depository Trust & Clearing Corp. that the clearinghouse will settle trades made on Jan. 7 and Jan. 8.
NYSE said it would also halt trading in closed-end funds and in exchange-traded products listed on its NYSE Arca exchange if they hold banned stocks.
On Friday, China Unicom said it would release a statement in due course. China Mobile and China Telecom didn’t immediately respond to requests for comment.
An executive order signed by President Trump in November will block Americans from investing in a list of companies the U.S. government says supply and support China’s military, intelligence and security services. The ban starts on Jan. 11 and investors have until November to divest themselves of their holdings.
The list currently includes 35 companies—including China’s largest chip maker—as well as surveillance, aerospace, shipbuilding, construction and technology companies.
It wasn’t initially clear whether the order covered subsidiaries as well as parent companies, and U.S. government leaders clashed over how broad the blacklist should be, The Wall Street Journal reported in December.
However, this week, the Treasury Department said it would add subsidiaries to the blacklist if they were majority-owned—or controlled—by a company that has been named. The Treasury’s Office of Foreign Assets Control, which handles economic sanctions, also said the ban covered derivatives and depositary receipts, as well as exchange-traded funds, index funds and mutual funds.
Last month, index compilers including
FTSE Russell and S&P Dow Jones Indices said they would remove some Chinese stocks from their benchmarks because of the order, though they didn’t exclude shares issued by subsidiaries and affiliates.
China Mobile, which has a market value of about $117 billion, wasn’t included on the original blacklist, though its parent—China Mobile Communications Group—was. Its U.S. stock is thinly traded compared with its Hong Kong securities, FactSet data shows. About 2.1 million American depositary receipts traded daily on average over the past three months, compared with 34 million Hong Kong shares a day. Each ADR is equivalent to five ordinary shares in Hong Kong.
Other U.S. initiatives could also bring more delistings. Last month, Mr. Trump signed legislation that could have Chinese companies kicked off U.S. markets if American regulators can’t inspect their audits within three years. Some Chinese companies, including
have already obtained secondary listings in Hong Kong, which could help blunt the impact of such an action.
Write to Chong Koh Ping at firstname.lastname@example.org
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8