At the beginning of January, the drama of delisting certain Chinese stocks controlled the headlines for a few days. Then, as we all know, other more newsworthy stories occurred, and we all forgot about the delisting of Chinese stocks due to 'national security' concerns.
Several different stocks were being thrown around as possibly being delisted in the future, which could affect you even if you don't own any individual Chinese stocks or Chinese-focused ETFs.
The delisting occurred as a way to 'protect' the national security of the United States against China. So, the main focus of the delisted stocks were those of military importance to the Chinese government. Most of the stocks on this list the average investors would have never heard of before. But, there were three telecommunications companies thrown on the list that some investors may have heard of. However, still very unlikely you would be holding them individually or through a non-Chinese-focused ETF.
However, two Chinese stocks, in particular, are a part of a vast number of popular ETFs in the US. The companies are JD.com (JD) and Alibaba Group Holding (BABA). For whatever reason, these two stocks were and still to an extent being considered as possible additions to the delisting list.
A quick screen shows that 100 ETFs hold JD.com and 113 ETFs hold BABA. BABA has 1.85 billion shares in float, and currently, almost 65 million are held in ETFs. BABA is the second-largest holding in the Vanguard FTSE Emerging Markets ETF (VWO) which has 5.5% of its $75 billion in assets in BABA stock. The Invesco BLDRS Emerging markets 50 ADR Index Fund (ADRE) has 17.99% of its assets in BABA and another 4.32% in JD.
JD.com has 903 million shares in float, and 50 million of them are currently held in ETFs. The largest holder of JD.com is none other than the Invesco QQQ Trust (QQQ). Remember, these are not Chinese-focused ETFs; this is the Qs and a few other Emerging market ETFs with very large positions in two very common widely held stocks that could be placed on the delisting list.
Of course, JD and BABA are just two of the big names that could be added to that list. Companies like NIO or any of the other Chinese electric vehicle stocks could be added to the list. We could see other autonomous driving technology companies or battery manufacturers added to the list.
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The number of companies and the wide range of overall impacts the delisting of Chinese stocks could have on American investors could be huge.
Many experts believe the delisting was a Trump revenge tactic prior to leaving office and that the Biden administration will not push the subject or add more names. However, if you are like me, I own shares of NIO, or you hold ETFs which could have exposure to BABA, JD.com, or any of the other possible Chinese stocks that could be delisted, you should be watching this story closely develop so you are not caught in the cold if a delisting does occur.
If it does happen, the results could be bad for investors as prices could be volatile for a while as investors sell the stock before it is delisted. Some reports even indicated that the Trump administration wanted to make it a Federal crime if investor-owned shares of these delisted Chinese companies could still be traded on Pink Sheets if removed from the major exchanges.
Politics are constantly changing and affecting the markets. Hence, investors need to keep checking in on what politicians are regularly doing and bills being passed, regardless of which of the spectrum you sit on because money isn't blue or red; it's green!
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
