China will get sideswiped by American ESG fervour
24/12/2019 01:47
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Jeffrey Goldfarb
HONG KONG, Dec 24 (Reuters Breakingviews) - A new financial
front is opening in the trade war. There’s talk of delisting
Chinese stocks from U.S. exchanges and a legislative proposal to
block government pensions from buying them. Concerns about human
rights, audits and wild price swings are also being amplified.
That feeds right into America’s conscientious-investing hype and
will spark some capital flight in 2020.
Anti-China sentiment in the United States keeps escalating.
A bitterly divided U.S. Congress found common ground over
democracy-seeking protesters in Hong Kong and Muslims detained
in Xinjiang, official expressions of support that irritate
Beijing. The pressure is also spilling over into the world of
portfolio managers and investment committees.
Earlier this year, President Donald Trump’s administration
was contemplating how to bounce Chinese companies off major
American bourses, according to media reports. There were 172 of
them worth over $1 trillion as of September, with Alibaba
BABA.N accounting for about half of it. A congressional
commission also has recommended, among other restrictions, that
Chinese outfits be prevented from raising capital in the United
States unless Beijing clears the way for U.S. accounting
watchdogs to scrutinise their books.
Additional efforts threaten a chilling effect, too.
Republican Senator Marco Rubio, who introduced legislation that
echoes the commission’s audit-disclosure proposal, is also
leading a separate initiative to stop federal retirement funds
from investing in Chinese equities. It comes after a government
agency that oversees a $600 billion plan decided to track an
MSCI international index with a 7.5% weighting to companies in
the People’s Republic.
Another reminder of the dangers of Chinese stocks was
exposed by unprofitable marble miner ArtGo 3313.HK . Its Hong
Kong-listed shares had soared 3,800%, making them the year’s
best performer in the world in November and earning the company
an invitation into the MSCI China Index. It lost 98% of its
value, or nearly $6 billion, in one day after the index crafter
reversed its decision.
Even if no formal bans are enacted, the growing backlash –
and mob mentality – could easily take hold among U.S. custodians
of public and private money. Investors are also paying closer
attention to matters of environmental, social and governance
import. Those forces will combine in 2020 and prove costly to
Chinese stocks.
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(Editing by Antony Currie and Sharon Lam)
((jeffrey.goldfarb@thomsonreuters.com; Reuters Messaging:
jeffrey.goldfarb.thomsonreuters.com@reuters.net))