NYSE scraps plan to delist China telcos in unexplained U-turn

Hong Kong

THE New York Stock Exchange said it will not be delisting China's three biggest state-owned telecommunications companies, backtracking on a plan that had threatened to escalate tensions between the world's largest economies.

NYSE's U-turn came with scant explanation just four days after the exchange said it would remove the shares to comply with a United States executive order barring investments in businesses owned or controlled by the Chinese military. NYSE cited "consultation with relevant regulatory authorities" for the reversal in a brief statement late Monday but declined to elaborate further.

The about-face, described as "bizarre" by a Jefferies Financial Group analyst, whipsawed investors who on Monday had sold shares of the Chinese telecom companies and raced to bet on which stocks might be delisted next. China Mobile, China Telecom and China Unicom Hong Kong all rallied on Tuesday.

A lack of clarity on why NYSE changed course left investors to speculate over whether it was simply a result of the exchange initially misinterpreting the November executive order from President Donald Trump, or something with broader geopolitical implications.

The sense of confusion surrounding the implementation of Mr Trump's order hasn't been limited to the NYSE. Index providers FTSE Russell, MSCI and S&P Dow Jones Indices have all said in the past month that they would remove some Chinese stocks from equity gauges to comply with the order, but their lists of affected companies have sometimes differed markedly.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The stakes are high for both Chinese and US companies. The former have long turned to America's stock market for capital and international prestige, raising at least US$144 billion over more than two decades. Their US counterparts, meanwhile, are keen to avoid any ratcheting up of tensions that might curb their access to China's vast economy. Wall Street banks in particular have been pouring resources into the country after gaining unprecedented scope to operate there last year.

NYSE's reversal was "quite unexpected," said Jackson Wong, director of asset management at Amber Hill Capital in Hong Kong. "Some funds that had an obligation to unload these shares will now need to buy them back. Some investors are also starting to price in a scenario that the decision to halt delistings could be the start of a de-escalation in tensions between China and the US."

Calls and e-mails to the media department of the China Securities Regulatory Commission weren't immediately returned on Tuesday. The CSRC had responded to NYSE's initial plan by calling it groundless and "not a wise move". Spokespeople for the US Treasury Department, US Securities and Exchange Commission and the Financial Industry Regulatory Authority did not immediately reply to requests for comment.

It is unclear whether NYSE's reversal will have any impact on index providers, which help guide investments worth trillions of dollars. FTSE Russell declined to comment on Tuesday, while MSCI and S&P Dow Jones couldn't immediately be reached.

In separate statements, China Mobile, China Telecom and China Unicom said they will continue to monitor developments. China Mobile, the largest of the three, rose 5.1 per cent in Hong Kong on Tuesday. The company's New York-listed shares surged 10 per cent before the official open of US exchanges.

China's Foreign Ministry spokeswoman Hua Chunying said on Tuesday that Beijing hopes the US will respect the market and rule of law, and do things conducive to upholding order in the global financial markets.

The NYSE's initial delisting proposal, announced on New Year's Eve, marked the first time an American exchange had unveiled plans to remove Chinese companies as a direct result of rising geopolitical tensions between the two superpowers. In his executive order, Mr Trump said the three telcos were among those directly supporting the Chinese military, intelligence and security apparatuses and aiding in their development and modernisation.

The developments have unfolded in the last few weeks of the Trump administration, which has long railed against China for what the US president calls unfair trading practices.

NYSE has faced criticism from some market watchers over the way it handled the situation. Travis Lundy, an Asia markets veteran and independent analyst who publishes on the Smartkarma platform, said in a tweet that the U-turn reflected "rank ineptitude" by the exchange and "weak leadership" by the Treasury Department.

"They've had seven weeks to talk to Treasury about this," Mr Lundy said, adding that the department had published lengthy supplemental FAQs as well. "To implement the decision, and then four days later to backtrack - that's just odd." BLOOMBERG