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Bloomberg·

Trump’s “army-related” investment ban on Chinese companies may trigger a full retreat from Wall Street

[Bloomberg]- Two months ago, Donald Trump issued an executive order prohibiting US investment in Chinese companies associated with the military. More than a day after the order took effect, the financial industry is still struggling to explore Clear what can and cannot be done under the new rules. This ambiguity has prompted some Wall Street companies to make the mistake of being too cautious, which means that the impact of the ban on the market may be more extensive than originally thought. Two bond fund managers in Asia said that as many securities firms withdrew, it has become increasingly difficult to sell bonds of affected companies. Because the information has not been made public, the two requested anonymity. The question that still hangs on some of the largest securities companies in the United States is whether Trump’s order will force them to stop matching investments in restricted companies for all customers or only for customers in the United States. People familiar with the matter said that some companies decided that they should implement the ban on a global scale, while others believed that they could continue to trade for non-US customers. Brokers have also reached different conclusions on whether they will continue to process sell orders. Several brokerages said that the situation is changing and their interpretation of the rules may also change. Even for institutions that plan to continue trading banned companies for non-US investors, it is difficult in some cases to determine who can be excluded from the ban. For example, some brokerage firms are not sure whether they can execute transactions in Asian mutual funds that manage funds on behalf of US investors. Often brokerages don’t even know whether the fund serves American clients. As a result, Trump’s ban may eventually restrict many non-US investors, which may increase selling pressure on affected stocks, bonds, and derivatives, and reduce their liquidity. As investors interpret the ever-changing and sometimes conflicting guidance from regulators, index compilers, and the New York Stock Exchange, the share prices of China Mobile, China Telecom and China Unicom (Hong Kong) have fluctuated sharply in the past week. Whether the ban will cause prices to fall further remains to be revealed. In the past two days, some of the affected stocks have risen sharply, and China Mobile has rebounded from a 14-year low in the Hong Kong market due to the influx of buying orders from mainland investors. Some Asian hedge funds, including Changlang Asset Management Co., Ltd., are also buying, and they judge these stocks to be undervalued. Although the U.S. Treasury Department has repeatedly tried to make further clarifications on its website, issues surrounding the scope of Trump’s ban persist. The US Treasury Department did not immediately respond to requests for comment on Tuesday. Trump’s order applies to more than 30 Chinese companies deemed by the United States to be owned or controlled by the Chinese military. It prohibits “Americans” from trading in these companies “publicly listed securities, any securities derived from such securities or designed to provide exposure to such securities.” The U.S. Treasury Department has stated that the ban covers funds and index-linked products that have exposure to these companies-regardless of size. It stated in its latest guidance on January 6 that market intermediaries can coordinate and dispose of these securities transactions before November 11. By then, American investors must achieve a complete divestiture. Some large US fund management companies have already begun to reduce their shareholding. According to people familiar with the matter, BlackRock, the world‘s largest money management company, has reduced its holdings in China Mobile, China Telecom and China Unicom (Hong Kong) in recent weeks and plans to continue selling them. Vanguard Group said on Tuesday that as of January 8, it had cleared the stocks of Chinese companies listed in the ban. On January 8, MSCI Inc. removed the shares of the above three telecommunications companies from its stock indexes that were widely tracked by the market. FTSE Russell and S&P Dow Jones Indices have taken similar steps. On Sunday evening, Goldman Sachs, Morgan Stanley and JPMorgan Chase said they would delist 500 structured products in Hong Kong to comply with the ban, including some products linked to Hong Kong’s benchmark Hang Seng Index. Hong Kong’s most active exchange traded fund (ETF), managed by a subsidiary of State Street, initially stated that it would not make any new investments in entities sanctioned by the United States, but on Wednesday changed its position and stated that it would resume sanctions investment. Previously, the Hong Kong Monetary Authority asked State Street to further clarify the impact of its initial decision, and the former president of the Monetary Authority Ren Zhigang criticized State Street in an interview with local media. Last weekend, China responded to U.S. sanctions by issuing regulations to protect local companies from “improper” sanctions by foreign laws and allowing Chinese courts to punish multinational companies that comply with foreign sanctions. As China opens up its financial markets to attract more capital and investment, this may complicate plans for major Wall Street banks and their foreign competitors to expand in China. So far, political turmoil has had little impact on the opening of financial markets. Original title Trump’s China Investing Ban Spurs Broad Wall Street Pullback (2) (Update the penultimate paragraph) For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source. ©2021 Bloomberg LP

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