Should ETF Investors Be Worried About The Delisting Of Chinese Equities?

In a separate, more detailed, Market Insight article, I lay out the legal and social history behind the antitrust issue and continue to argue that these headwinds are headline grabbing, but not of significant risk to China’s tech and consumer discretionary sectors. Part of doing business in China is the challenge of whether/how much to accept and manage the constraints of opaque regulatory risk.

5. Potential Outcomes of a Reciprocity-Based Strategy

Based on the U.S. response to Chinese restrictions on airline travel between the two countries this year, as well as executive actions and legal challenges against TikTok and WeChat, a theme of reciprocity in market access seems to be driving economic conflicts.

This reciprocity-based strategy does not suggest  a dramatic escalation of U.S.-China financial conflict over the next four years or so, such as forbidding U.S. investors from investing in any Chinese equity, whether listed on the HKSE or the Chinese mainland. 

The hope—the belief—is still that the U.S. and China will work out some issues based on mutual benefits and common ground, with a whack-a-mole game of broad economic and political conflicts persisting decades down the road. 

We can only follow Winston Churchill’s advice: “It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time.”

6. The Primary Factor (Expected Earnings Growth Rate) Driving Chinese Equities Has Not Changed

The final point is that the primary factor driving Chinese equities is their expected earnings growth rate and whether actual growth supports current valuations.

Pinduoduo, an e-commerce company that directly competes with Alibaba (baba) and JD.com (JD), has seen heavy volatility recently. It delivered high growth, but sometimes not as much as the Street had hoped given its rich valuation. The top non-state-owned Chinese firms, which are the most vibrant segment of the Chinese economy, have delivered significant sales growth compared to top U.S. firms in the S&P 500.

Future earnings and stock price increases of these companies will come from both U.S. and Chinese economic growth continuing to support global growth.

Desliting Tables

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