J.D.com, Alibaba promote a Shift to the Hong Kong Market
U.S. supervisory oversight and high bilateral tensions deepen firms’ prospects on Wall Street as few leading Chinese tech firms are seeing investors who boost their proportion of Hong Kong-traded shares away from American Depository Receipts.
According to the exchange data available through January 2021, Nine Chinese firms have seen an increased proportion of Hong Kong shares in the past years. These firms have the U.S. primary listing and secondary or dual primary-listed status in the Asian financial hub.
Nearly the conversions doubled, Alibaba Group Holdings Ltd. and JD.com Inc. led the pack. ADR holders can hand their U.S. shares back to the depository bank to register a conversion that trades them into Hong Kong-listed shares at a set ratio.
Reversing the trend has helped develop some of China’s most influential companies and enhanced global banks and investors via New York-bound share floats in the last two decades. This development supplemented the momentum of financial decoupling between the world’s two largest economies.
The “homecoming” of more U.S.-listed Chinese firms and their trading to Hong Kong will benefit its status as a financial centre. However, the excessively thin liquidity in the city’s stock market may be a hurdle for investors.
Alibaba, JD.Com are among the U.S.-listed firms seeking stock migration to Hong Kong. Mentioning to the certificates that are equivalents of shares in foreign firms, Vivian Lin Thurston, portfolio manager at William Blair Investment Management, said that the ADR delisting risk is the key driver of this liquidity shift.
A month before leaving office, U.S. President Donald Trump signed a law under which if Chinese firms do not show financial information to American regulators, they may face delisting starting in 2024. Converting shares from the U.S. to Hong Kong allows investors to minimize that risk.
Investment specialist at BNP Paribas Asset Management Asia, Jessica tea, said that most foreign investors would still be able to keep their exposure to these stocks via their Hong Kong listings even in the case of forced ADR liquidation or restrictions for investors to trade ADRs in the U.S.