• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Global Equity

NYSE Could Flip a Third Time on Delisting Plans for 35 Chinese Companies

An executive order says U.S. purchases of military-linked Chinese companies must stop by January 11, including three of the world's top-20 telecoms.
By ALEX FREW MCMILLAN
Jan 06, 2021 | 07:00 AM EST
Stocks quotes in this article: CHL, CHA, CHU, ORCL, LLY

What is going on at the New York Stock Exchange?

The NYSE said on New Year's Eve that it would delist China's three main mobile-phone companies: China Mobile (CHL) , China Telecom (CHA) , and China Unicom (CHU) .

Then, late on Monday night, the exchange said it wouldn't do that. It had a change of heart.

Now, as I write, we're getting word that they may move to delist them again. Investors will have whiplash, not to mention a headache making any sort of sense out of a portfolio that contains those stocks.

The Big Board is trying to comply with a November executive order from President Trump. The order said that, as of January 11, all trading had to cease in the three companies, as well as 32 other companies judged by the United States to be part of the Chinese military-industrial complex.

Trading will be allowed until November 11 this year - exactly one year after the order - if the trading is necessary for investors to sell out of the stocks.

These are three of the largest telecoms in the world, with a combined market value of US$156 billion. That's around the size of software maker Oracle (ORCL) or the drugmaker Eli Lilly (LLY) .

Trump's order said such companies with close ties to the Chinese military are a national security threat. By using ostensibly private companies to serve its military and raise capital on overseas exchanges, China "exploits United States investors to finance the development and modernization of its military," the order states.

My reading of the order, which is pretty clear, is that investors aren't allowed to buy the stocks of those 35 companies after January 11. That's unless, somehow, they can claim a purchase is necessary to divest the securities in the long run.

At no point does the order say exchanges have to delist the companies, simply that U.S. investors, funds and companies can't buy their shares. By extension, you could argue foreign investors aren't covered, so they could keep trading those stocks on the NYSE.

In any case, it wouldn't be until November 11 that the NYSE would have to stop purchases by U.S. investors. That indicates the shares need to trade until November 11, at least.

The NYSE has confused everybody by acting much like a Chinese stock exchange. It's making overnight rash decisions without public consultation, or any indication it's about to make these changes. Investors have a right to be angry. This isn't a tin-pot dictatorship where a leader or regulator makes rash sudden moves without warning. Well, the United States shouldn't be.

The latest wrinkle comes after U.S. Treasury Secretary Steve Mnuchin reportedly called NYSE President Stacey Cunningham to tell her that he disagreed with the Big Board's decision to reverse course about delisting the three companies. Phew.

The Treasury is the arbiter of the rules on the situation. The executive order says it's the Treasury Secretary who should explain the rules and regulations, and make sure they go into effect.

Mnuchin expressed to Cunningham his "displeasure" at the NYSE's about-turn, according to Bloomberg, which says "exasperation" over the stock exchange's shock turnaround reaches the "highest levels of the Trump administration."

Mnuchin is leading the administration's response. But Bloomberg says he is backed up on this by Chief of Staff Mark Meadows, National Security Advisor Robert O'Brien and National Economic Council Director Larry Kudlow. Heavy hitters and China hawks, all three.

Not surprisingly, the shares of the three companies have been all over the place. They rallied in U.S. trade on Tuesday morning after the initial delisting selloff. But in late trade on Tuesday, they lost around US$3.5 billion when it seemed the NYSE might make its third change of heart. All three are also listed in Hong Kong.

There's no doubt this would be a loss of face for China, a rebuke that it's not a market economy and not following capitalist rules. It's no surprise that a state-owned telecom would serve the military - I'm sure the vast majority of telecommunications companies the world over win military contracts - but China's state-owned companies are very much directed by the central government in the end. They'll do the Communist Party's bidding.

It doesn't make a lot of sense that companies owned or directed by a Communist government have full access to free capital markets. The same kind of access is not granted the other way, either, since China's stock markets in Shanghai and Shenzhen are roped off.

Would it affect the operations of the three companies? Not really. They rely on the enormous domestic Chinese market, and have built out the largest 5G network in the world. They're cutting-edge at home, whether or not they get investment from Mr. or Mrs. Smith.

Citic Securities analysts said in a research note that the three companies have on average only 1.5% of their shares listed in the United States, and have not raised capital there for 20 years. So having shares listed on U.S. exchanges "will only pose more risk for them," the brokerage said.

The NYSE is now seeking clarification from the government on what is and isn't allowed. If trading is indeed banned in those securities, they'll be delisted, Bloomberg's sources say.

The Treasury Department issued a statement late Monday saying the executive order does not require U.S. people and funds to divest their holdings in the 35 Communist Chinese military companies by January 11. But it did not say anything else, such as whether they have to have done that by November 11, which is how I read the order.

All this could change with the stroke of a pen once incoming President Biden takes office. Any executive order from Trump can be undone with another executive order from Biden. But it remains to be seen whether Biden will risk any political capital making concessions to China, when there's bipartisan support for taking a tough stance on the country.

Biden's team have declined to comment, for now. With exactly two weeks left in the outgoing president's scheduled term before he has to leave the White House, Trump has a matter of days to put in place his final restrictions on perceived enemies, however he construes that. Measures attacking China now will surely constrain Biden's hand.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Alex Frew McMillan had no position in the securities mentioned.

TAGS: Investing | Markets | Politics | Stocks | Trading | Technology | Telecommunications | China | Telecom Services | Global Equity

More from Global Equity

India's Equity Market Sees Foreign Investors Sell at Record Rate

Alex Frew McMillan
Jun 27, 2022 8:00 AM EDT

After two years of strong buying, international investors are now dumping Indian stocks as they look to capture gains.

Chinese Tech Company Ximalaya Pulls Planned IPO Yet Again

Alex Frew McMillan
Jun 24, 2022 6:30 AM EDT

Poor market conditions and the uncertain status of Chinese tech listings cause the podcast market leader to put off its Hong Kong IPO.

Why It Costs $1B Per Year to Go Up Against Indonesia's GoTo Group

Alex Frew McMillan
Jun 22, 2022 6:30 AM EDT

It's not often you find a tech stock with defensive characteristics and a strong upside, but GoTo offers both.

Why Exporters in Japan, Domestic Plays in China Offer Protection

Alex Frew McMillan
Jun 17, 2022 8:01 AM EDT

Chinese stock markets have offered surprising strength while a weak yen will boost profits of Japanese firms that reap most of their sales overseas.

Unexpectedly Strong Trade Data Drive Chinese Shares Higher

Alex Frew McMillan
Jun 15, 2022 7:26 AM EDT

The Chinese economy showed signs of recovery in May. But the world's second-largest economy is hostage to a new phenomenon: the 'Covid business cycle.'

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login