The easing of one Chinese regulation – a Parthian shot?

An announcement from Beijing last weekend reminded me of the country of my birth: Iran. Over the years this has always been a matter of some consternation for US immigration officials when I have appeared before them with my passport. The fact that my immediate family left the country to settle in the UK in the 1960s seems to cut little ice.

Way before then (around 240 B.C.) there was a tribe marauding around in Persia, as it was known back then, called the Parthians. Prodigiously skilled horseman their favoured tactic was to feign a retreat and when their opponents, full of victorious zeal, gave chase the Parthians would swivel in their saddles and mow them down with a volley of arrows.

The image came to me as I read over the weekend about how Beijing is now shifting its position on allowing Chinese companies listed in the US to make the proper disclosures required by SEC regulations. As you know this has been an issue for much of the last 10 years with the Chinese refusing to do this when supposed matters of national security were at stake.  Of course, this became more of issue post 2018 as trade war tensions increased. Finally, it seems Beijing is recognising that its sensitivity about national security should be rethought if it wants Chinese companies to raise capital in the US. Full and proper disclosure for investors is fundamental.

One could despair of geopolitics but as portfolio managers we don’t have that luxury. We remain pragmatic: in the near term the move may not help to brighten the unadulterated negative sentiment towards Chinese ADRs. However, as we have written before (Chinese ADR Listings – Last Year’s News), the issue has already been “resolved” by many of the best Chinese companies with ADR listings covering their retreat by obtaining listings in HK and Shanghai.  Like the Parthians’ various opponents, US regulators should not think they have won a great victory.

That said, in a troubled world, even the smallest concessions should be welcomed.  Expect more of this market supportive stuff from Beijing in the coming weeks.

A PDF version of this article is available here.

This article has been issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction. This article has been prepared solely for the intended recipient for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Any comments expressed in this article should not be taken as a recommendation or advice. Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated. Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this article or any part of its contents. This article does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions.


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