Tourists walk near a large Chinese national flag painted on the side of a container at an outdoor market during the Golden Week holiday in Beijing, China, Oct. 3, 2024.
Kevin Frayer | Getty Images
China is making it harder for retail investors to direct money into US stocks, fueling a long-term shift that directs domestic and corporate funds to Hong Kong.
Beijing’s security regulator recently stepped up scrutiny of offshore trading firms, saying it would “strictly crack down” on Tiger Brokers, Futu Holdings and Longbridge Securities for what it described as illegal border security operations. It is the latest salvo in a years-long effort to close loopholes that have allowed international investors to access overseas markets without formal channels.
The change “could reduce capitalization on US-listed ADRs,” said Vey-Sern Ling, senior equity adviser at Union Bancaire Privée. “Hong Kong listing may therefore be more attractive if the company qualifies for Stock Connect,” a system that allows Chinese middlemen to invest in other Hong Kong-listed stocks through their local brokerages.
The latest move comes as Beijing tightens a broader cleanup of China’s financial sector under securities regulator Wu Qing, while simultaneously tightening oversight of cross-border money flows and financial risk.
While the crackdown has renewed concerns about foreign access to Chinese markets, analysts widely underestimated the impact on global investors and currencies.
“There should be no noticeable impact on foreign investors at all,” said Theodore Shou, chief investment officer at Skybound Capital. The devaluation is unlikely to hurt trading prices in Chinese ADRs, he added, because the affected investors represent a small part of this customer base and may still find other ways to go to overseas markets.
The biggest may be the continued migration of Chinese labor and investment to Hong Kong, which analysts say Beijing sees as a safer and more manageable financial center.
Still, UBP’s Ling cautioned that the upside may be limited because many large Chinese firms have shifted to Hong Kong in the past few years amid US-China tensions.
“Among companies that have a dual listing in the US and Hong Kong, most of the trading is already done through HK in many cases,” he said.
Some strategists have argued that Beijing’s tightening also coincides with a broader push to channel investor enthusiasm toward China’s domestic technology giants and strategic industries — for example, a series of initial public offerings expected in the coming months.
A pipeline of high-profile listings including memory chipmaker CXMT, robotics firm Unitree and semiconductor company YMTC could benefit from changes in Beijing, according to Peter Alexander, founder of Shanghai-based consulting firm Z-Ben Advisors.
“The presentation of these companies to the public goes beyond financial topics only,” he said. “China is making real strides in building an array of custom-built companies to address the technology gaps that currently exist with America.”
