Chinese shares immune to Trump's bark and no bite

By GT staff reporters Source:Global Times Published: 2020/6/1 20:53:40

Chinese shares immune to Trump’s bark and no bite


Hong Kong street Photo:VCG

US President Donald Trump's flame-fanning rants against China have been rallying instead of sinking Chinese stocks, unwittingly thrusting the resilience of Hong Kong's market into the spotlight. 

Both Chinese mainland shares and Hong Kong stocks were in a sustained rally on Monday, with Hong Kong's Hang Seng Index soaring 3.36 percent, calling Trump's bluffs. The benchmark Shanghai Composite Index closed up 2.21 percent to well above 2,900 points, its highest level in nearly three months.

In a recklessly arbitrary move, Trump announced on Friday at a news conference regarding China that his administration would begin revoking Hong Kong's customs and trade privileges.

His threats also included an instruction given to his presidential working group on financial markets to study the various practices of Chinese companies listed on US financial markets and a proclamation that bars certain Chinese students and scholars from entering the US.

The US president's various accusations against China show an outright disregard for the facts and the measures announced severely interfere with China's internal affairs, undermine the China-US relationship and are designed to harm others while only injuring itself, Chinese Foreign Ministry spokesperson Zhao Lijian said on Monday, voicing China's resolute opposition against the US move.

A group of Hong Kong residents show their support on Tuesday in Wan Chai for the upcoming national security law, which was announced by the 13th National People’s Congress on Thursday in Beijing, aimed at ending months-long riots across the city. Photo: Courtesy of Nicholas Muk

The China Securities Regulatory Commission (CSRC) resolutely supports and upholds Hong Kong's position as an international financial hub and the city's capital market stability and development, according to a meeting presided over by CSRC chairman Yi Huiman on Monday.

The securities regulator pledges to strengthen cooperation between mainland and Hong Kong capital markets and to ramp up policy support, allowing for the two markets to jointly cope with various risks and challenges and pushing for stable and healthy development of both markets.

That Chinese shares remain immune to Trump's much-watched news conference is clearly an indication that his latest rant is essentially all bark and no bite, market watchers said, expecting the Chinese equity market to enter a strategic "golden era" with bold reforms on home turf boosting the appeal of local stocks and anxieties arising from US-initiated disputes tapering off. 

"I predict that the US will exert further pressure on Hong Kong's capital markets, but such pressure is unlikely to have an extreme impact on Hong Kong's financial market, because most of Hong Kong's financial activities are private transactions which the US government can't interfere in," said Xi Junyang, a professor at Shanghai University of Finance and Economics.

Hong Kong deals with investors from all over the world, not just from the US, Xi told the Global Times on Monday.

In a sign that the US employs all conceivable means to intimidate investors, the US government is reportedly inviting bids on its Hong Kong consulate housing, estimated to be worth over $400 million.

Despite threats from the US, Hong Kong will not lose its position as one of the most prominent financial hubs in the world just because of external pressure, Liu Guohong, director of the Department of Finance and Modern Industries at the China Development Institute in Shenzhen, told the Global Times on Monday.

"Whether Hong Kong is to retain its role as a financial center depends on whether Hong Kong can keep up and develop advantages such as market efficiency and investment opportunities," Liu said. 

Predicting that near-term market swings are likely, analysts believe that in the long run, the national security legislation for Hong Kong will be definitely beneficial to Hong Kong's financial markets as it helps stabilize society and eliminate violence. 

In the words of Liu, "nothing is more important than social stability to capital markets." 

The operation of stock link programs between exchange hubs in Hong Kong and the Chinese mainland, Liu believes, will also help prop up Hong Kong's financial markets, particularly at a time of relatively low stock valuations.

Monday's across-the-board rally came as a private survey showed on the same day that China's manufacturing activity unexpectedly returned to expansion levels in May, a conspicuous sign of a well-paced economic reboot in China.

Livestreaming commerce-related shares underpinned the mainland's share strength, which also points to the economy's vitality powered by new business streams.

Meanwhile, China has also stepped up the pace of reforms to render its capital markets a growing part of its economic prowess. 

As part of the reforms, the Shanghai Stock Exchange on Friday revealed plans to launch a market-maker system at an opportune time and to mull the introduction of same-day trading settlement (T+0) for a single transaction.

The exchange hub also responded to suggestions for a revision of the benchmark Shanghai index that has remained at the same level it was a decade ago, saying that it will learn from the best global practices and ensure the revision provides seamless compatibility with the existing index.

It has become somewhat a habit for mainland investors to view policies that encourage free trading and ease administrative intervention as being beneficial to stock markets. Mulling over the launch of T+0 is one of such policies that bolsters market sentiment, while China's push for a registration-based system on ChiNext board is another, Xi commented. 

Notably, a triple whammy of the continued spread of the COVID-19 pandemic, a fragile economy, and raging protests across the US regarding a former Minneapolis police officer who was charged with manslaughter over the death of an unarmed black man, George Floyd, is seen as pushing the Trump administration to the brink of burnout.

Observers also downplayed fears of US regulatory tightening on US-listed Chinese firms, potentially a market de-stabilizer. 

The US has been pushing to improve accountability and increase transparency in accounting and governance practices of US-listed Chinese companies for a while now and the investor community has been fully aware of these issues, Jonathan Zhou, a New York-based counsel at global law firm Freshfields Bruckhaus Deringer, told the Global Times on Monday. 

Prior to Trump's latest threats, the US Senate passed the Holding Foreign Companies Accountable Act.

The proposed act will have limited direct impact on a company's consideration to seek a secondary listing in Hong Kong or re-listing in the A-share market, as it still needs to be voted on by the US House of Representatives and then signed by the US president, so its future is unclear, Zhou said. He went on to say if it becomes law, the US Securities and Exchange Commission needs to issue rules to implement the legislation and scope with details of such implication rules remaining to be seen.  

"In our view, market factors are more relevant to a company's consideration for a secondary listing in HK or returning to the A-share market - and such consideration is necessarily complex, requiring the careful weighing of both factors in the US market as well as conditions in the 'home-coming' market," Zhou said.


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