In Extraordinary News, Trump Considers Delisting Chinese Equities, Taking Control Of Stock Index Construction

In Extraordinary News, Trump Considers Delisting Chinese Equities, Taking Control Of Stock Index Construction

In what would amount to an extremely hostile broadside just as trade talks were set to get back on track, the Trump administration is reportedly considering a move to restrict US investors from investing in Chinese equities and otherwise choke off portfolio flows to China.

Although the details are, as yet, sketchy, sources say the White House is pondering a number of options to limit capital flows including what sounds like a decree capping investment via government pension funds.

In addition, people familiar with the discussions say the president is also considering forcibly delisting Chinese companies from US stock exchanges. China ETFs careened lower on the news, first reported by Bloomberg, whose coverage notes that “the fresh momentum behind the effort is partly due to a push from lawmakers to demand reciprocity with Beijing and a pending deadline for the government’s main retirement savings fund to channel billions of dollars into Chinese companies next year”.

Although the logistics of any action are still under discussion, Trump is said to have personally approved the deliberations. Unsurprisingly, Peter Navarro is spearheading the push, although more dovish advisors are on board too. It has explicit support from Marco Rubio, with whom the administration has been consulting.

“It is now considering whether to back legislation [Rubio] put forward over the summer that provoked much debate over the issue of how to protect US investors with funds allocated into what are often opaque Chinese companies”, Bloomberg goes on to write, adding that “Rubio, who sponsored the so-called EQUITABLE Act, is the biggest champion of such efforts on the Hill and his public comments largely mirror what the White House is discussing”. In a statement to Bloomberg, Rubio had this to offer:

This administration deserves credit for their efforts to deal with the threat that the Chinese government and Communist Party poses to US national and economic security, including how Beijing takes advantage of its access to US capital markets for predatory purposes.

One idea, which the administration hasn’t yet figured out how to implement, reportedly involves dictating the composition of stock indexes put together by US firms. In other words, Trump appears poised to intervene in index construction in order to personally decide what can and can’t be included vis-à-vis Chinese equities.

Alibaba plunged as the news crossed.

It would be difficult to overstate the gravity of this.

If the administration pushes ahead with this plan, it’s hard to see how trade talks could possibly move forward. Perhaps more importantly, it would represent the White House intervening directly in capital markets with an eye towards deciding where US investors are allowed to put their money.

This will all be done on the excuse that the Trump administration is trying to protect Americans and defend the country’s national security by “decoupling” economically from Beijing in order to ensure Americans aren’t accidentally funding a hostile foreign government. That’s a line pushed by the likes of Steve Bannon and Kyle Bass.

Oh, and this will doubtlessly reignite the discussion around China weaponizing its hoard of US Treasurys.


16 thoughts on “In Extraordinary News, Trump Considers Delisting Chinese Equities, Taking Control Of Stock Index Construction

  1. Not a trump groupie by any means, but I was very against corporations like alibababa being fast-tracked and blessed by SEC, FTC, Treasury and wall street with its IPO — and thus would love to see IPO’s like that move to Hong Kong — trump is on the right track with that IMHO.. The accounting (fraud) from any China IPO doesn’t stand up to GAAP and Basil scrutiny, but it was a way to make some bankers wealthy, so there yah go.

    Somewhat related, I finally see daylight in understanding the game behind The IOER and Crisis By Design …

  2. Re: “capping investment via government pension funds.”

    Why would any American be against this, pensions are highly underfunded today and allowing companies from China (anywhere) to be in our pensions, without having verifiable accounting creates YUGE risk! Companies with non-GAAP disclosure who skirt risk analysis should not be in any portfolio and this garbage shouldn’t be on our stock exchanges — if yah wanna invest in risky crap, go buy your own exposure to crap and don’t stuff it my 401K plan!

    FYI, from last year (this was at the heart of why the bababa IPO was suspect and all the amazing earnings growth:

    “China’s state security laws are invoked at times to limit U.S. regulators’ ability to oversee the financial reporting of U.S.-listed, China-based companies,” the SEC said in a joint statement with the Public Company Accounting Oversight Board. “The inability to date to achieve this level of regulatory cooperation with Chinese authorities raises a number of investor protection and general oversight issues

    1. “Companies with non-GAAP disclosure who skirt risk analysis”

      Is this a joke? Do you know how many US companies fit that description?

      This is just like everything else this administration does: A thinly-veiled attempt to advance Trump’s jingoistic, vindictive agenda disguised as an appeal to “national security”. He’s weaponizing the US financial system to pursue his own ends, just like he’s weaponizing US aid to Ukraine to advance his reelection agenda.

      The sooner America comes to terms with the fact (because that’s what it is — a fact) that Donald Trump doesn’t do anything unless he thinks he can benefit from it personally, the better.

      This has nothing to do with protecting American investors. Nothing. He’s taking advantage of honest efforts on the part of well-meaning lawmakers to push his own pernicious, anti-globalist nonsense, and it comes as absolutely no surprise that this is in part informed by Steve Bannon.

      1. Re: “Is this a joke?”

        No, just an over-reaction and a long-standing hate for baba and its IPO. Relax, I’m on your side and I’m well aware of how non-GAAP fraud is systemically important to America, and patriots like Warren Buffett who are still in the process of learning how to front run honest accounting. Seems like only yesterday he had problems with Kraft: ” Hathaway may hold back on disclosing intrinsic value estimates because the SEC has said that “free cash flow” metrics, which are non-GAAP figures, are liquidity measures. The SEC prohibits companies from disclosing per-share amounts for liquidity measures.” Seems there was something back then about zero-based budgets, etc… and of course Warren had trouble years ago with AIG and his derivative weapons of war were awkward. Believe it or not, I’m for hard line accounting control and regulation enforcement!

        In terms of a trump strategy, it’s as-if hitler is in the bunker pulling out all the stops in a last ditch effort to do as much insane, illegal stuff that he can, before the boys have to either attempt to escape or to hold each other in their arms and pull the plug, pin or whatever thee plan book suggests.

  3. My snap reaction. Won’t happen – Wall St will oppose so hard that Congress will block this. In trade war context, seems like administration’s approach to deal making is akin to “grab them by the pussy”.

  4. At what point does the irrational fear of President Warren become more palatable than the actual policies of President Trump to the Wall Street crowd?

    Maybe we aren’t even close yet, but I have to believe a few people are thinking there are better options out there than this.

  5. Trump “weaponizing US aid to Ukraine to advance his reelection agenda” may be a bit of a stretch. However, no doubt this sort of mafia-esque talk is how Trump operated his business, and has comfort level with it. Reading transcript suggests Trumps first agenda was to get help with getting to bottom the attack on the DNC server, which DNC turned over to private firm rather than US officials. Only at end does Trump behaved inappropriately with regards to the Biden nepotism/corruption which should be properly investigated by others. Greater question is why Pelosi/DNC pursue sure-to-fail impeach effort in midst of coming 2020 election preparation. What angle will they pursue that won’t sully neoliberal’s HRC clone Biden? Doesn’t make sense yet, but Russiagate was also a desperate act. On its face it appears to strengthen alternative “Bernie inspired” challengers to Centrist Dem fav Biden. How are they planning to make lemonade from this horrid lemon of a candidate? Will be fun to watch the mechanism of power revolve to its endgame

    1. Greater question is why Pelosi/DNC pursue sure-to-fail impeach effort in midst of coming 2020 election preparation

      Maybe because if you don’t do something to stop a criminal the crimes will keep getting worse?

  6. It is terrifying that people would accept this. So much for the FREEDOM of choice we American’s have. He made crap tons of money in China. How quickly people forget…..

    If he had his way American’s would have ZERO choice at all. Wrap it all up in a BULLSHIT “National Security” bow. We’d only have access to goods and services offered here in America Cars, washer/dryers, nuts, bolts…his list is endless.

    Why are people so ready to accept these restrictions from the President of the United States of America and chide other countries for the same behavior? Scary, Scary, Scary times…

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