Friday, October 04, 2019

Quora: Donald Trump is considering delisting Chinese companies from U.S. stock exchanges. What effect will this have on the U.S., China, and stock holders?

Robin Daverman, World traveler answered.

It’s a bit strange. Chinese companies listing in the US is a rather recent phenomenon. There was absolutely NO Chinese companies listed in the US until 1994, when a Shangdong power company get a historic first listing on NYSE. Nowadays, most of the Chinese companies listed in the US have a US connection - American VCs made investment in them, or American funds made investment in them, or there is some kind of partnership agreement with major US companies.\\

These companies have their revenue and customer base in China. Listing in the US stock exchanges is to allow their US investors to get their investment back, with profit. So - do US investors not want their money and profit back anymore?

Also, it turned out that it’s MUCH HARDER to get listed in China’s stock market than in the US stock market. China doesn’t allow any company to go IPO unless it has been significantly profitable for 3 years prior. In the US, you just need a banker who likes your story. So in the past decade, the US investment banks have been VERY AGGRESSIVE in trying to get Chinese companies to go IPO in the US. It basically means that US investors are willing to take more risks on earlier-staged companies, in order to get higher returns if their growth strategy pans out.

Which is why this approach is rather bizarre, because the only reason these US investors invested in Chinese companies is to get higher returns, and this measure is going to depress the prices and essentially force these investors to sell at a loss. So not allowing people to make more money is good? This makes no sense - or is there a severe liquidity problem in the market (rumor)? Because if there is, then selling at a loss to gain some liquidity is better than being stuck.

But then, it’s reasonable to ask the follow-up question: with all those QEs and flooding the system with cash, where did all the cash gone, and why are (some) people hoarding cash?

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