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.
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