Local retail investor warns of risks of buying shares of US-listed Chinese companies

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Business

Growing political tensions between China and the United States have led authorities to ban US entities from trading shares in companies believed to be controlled by the Chinese military. Photo/Getty Images

A local retail investor warns of the risks of buying shares of Chinese companies listed on US exchanges following the delisting of a major company.

Chinese ride-sharing giant Didi recently announced it was pulling out of the New York Stock Exchange (NYSE), with some analysts saying it was bowing to Chinese regulators angered by its US stock float earlier this year .

Rising political tensions between China and the United States had also seen US authorities ban US entities from trading shares in companies believed to be controlled by the Chinese military.

Didi’s decision to delist has raised concerns that other Chinese companies will follow suit.

Chinese stocks are listed on the NYSE as securities known as American Depositary Receipts (ADRs), which allow foreign companies to access US markets without the cost of a direct listing.

Local investor Jono Griffiths bought stakes in Chinese companies through the online platform Sharesies and feared he would be forced to sell his holdings at a discount as those companies saw record growth if they delisted.

“My main issue is that although Sharesies is primarily a stockbroker, they see themselves more as a stock facilitator (meaning they don’t offer financial advice), which is what I disagree with. OK.”

But Griffiths said he thinks Sharesies should warn people that Chinese stocks carry some risk.

“This is a New Zealand company and I believe it has an obligation to protect its members and investors.”

He reiterated that he was a big fan of the Sharesies because it made investing more accessible and allowed him to set up an account in his sons’ names.

Sharesies chief investment officer Gus Watson said of his 500,000 clients, about 5,000 own shares in Chinese companies listed on the NYSE.

He said companies are constantly being delisted for various reasons, and when they do, investors have three options.

They could sell their shares at their own pace, Shareseis could sell on their behalf at the best possible price, or possibly transfer their shares off the Sharesies platform, he said.

Watson said he had no specific warning on his platform about the risks of investing in Chinese companies, but noted the broader risks associated with investing in ADRs.

“We’re looking to describe different risks for different products, and one of the risks we describe with ADRs is geopolitical risk.”

The Sharesies website states that ADRs are subject to currency risk, fees and cancellation, the latter of which allows the foreign company to terminate its ADR, which would remove it from the US exchange.

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