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President Donald Trump waves while in Beijing in 2017.
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Some analysts are dismissing the Trump administration’s latest move against investments in Chinese companies, though others have warned it could signal additional actions against Beijing are coming.
President Donald Trump on Thursday signed an executive order prohibiting Americans from investing in a clutch of Chinese companies that his administration says support China’s military. The order bars investments in emerging-markets funds that include the companies starting Jan. 11, but it gives investors until November 2021 to divest themselves of existing investments.
Trump’s move is “more bark than bite,” said analysts at Beacon Policy Advisers in a note Friday. The action could be “an attempt to strike at China by any means possible by trying to pressure MSCI MSCI, -0.27% to remove these Chinese companies from its index,” but the analysts wrote that they are “skeptical that the Trump administration will be able to see that goal achieved.”
Beacon’s team is anticipating that President-elect Joe Biden’s administration could undo key parts of Trump’s executive order.
“While we do not believe the Biden administration will reverse this executive order given the bipartisan consensus in Washington to increase pressure on China, we expect the Biden administration will acquiesce to inevitable lobbying from the investment community to at least exempt transactions related solely to investments in indices like those maintained by MSCI through which people may indirectly own equity in the banned Chinese firms,” the analysts said.
“This move could be explained not as being weak on China, but simply cleaning up the mess left by the Trump administration. This then allows Biden to still maintain a tough on China view by keeping the heart of the order, but not punishing investors.”
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Brendan Ahern, chief investment officer at Krane Funds Advisors, also played down the order’s significance.
“The only company that is worth mentioning is China Mobile CHL, -4.17%. It is 1.36% of the MSCI China Index MCHI, +0.90% and 0.56% of the MSCI Emerging Markets Index EEM, +1.40%, ” Ahern said in a blog post. He predicted the order “will be challenged in court just like the ‘ban’ on TikTok. The probability that this will be implemented is extremely low in my opinion.”
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But other analysts said this executive order could presage other actions against China.
“More capital markets-related measures may be possible, which could add additional pressure for U.S. investors to re-evaluate broad exposure to Chinese companies out of increasing risk,” said analysts at Raymond James in a note.
“From our conversations with China contacts in DC, we have gathered that the administration may be planning other executive orders to implement the agenda of the administration’s hardliners which would be more difficult to reverse in a Biden administration.”
The additional moves could include withdrawal from the “Phase One” trade deal with China or “orders seeking COVID-19-related damages from China,” the Raymond James team added.
Analysts have been dismissive of other recent executive orders signed by Trump, including ones targeting drug prices, domestic manufacturing and pre-existing medical conditions.
This report was first published on Nov. 13, 2020.
