China remains a long-term magnet for institutional allocations and global manager expansion plans but bipartisan U.S. support for a tougher approach to its economic superpower rival could make the months leading up to America's Nov. 3 presidential election unusually uncertain for Chinese assets.
"Spiraling U.S.-China tensions are making some investors reassess their desired exposure" on the mainland now, with a general consensus that "U.S. pressure on China will continue to intensify heading into the election," said Aaron Costello, Beijing-based regional head for Asia with consultant Cambridge Associates LLC.
One executive at a global financial firm with plans to expand its asset management business on the mainland said heightened concerns about geopolitical tensions are putting potential money management deals on ice now as well.
Deals involving U.S. managers on the mainland should pick up considerably after the election, but for the moment no one wants to stick their head above the parapet, said the executive, who declined to be named.
Proposals — seemingly floated every week or so — for new U.S. policies or actions against Chinese companies have proven unsettling for some investment committees, Mr. Costello said. For the most part, however, the response has been "to stay the course or slow down deployments rather than to cut exposures," he said.
In August alone, for example, Keith Krach, the U.S. State Department's under secretary for economic growth, energy and the environment, sent a letter dated Aug. 18 to the governing boards of U.S. universities and colleges suggesting it might be a fiduciary duty on their part to divest their endowment funds' holdings of mainland-based companies ahead of likely moves by U.S. regulators that would lead to "a wholesale delisting of (People's Republic of China) firms from U.S. exchanges by the end of next year."
The day before, meanwhile, the U.S. Commerce Department announced additional steps to limit Huawei Technology Co. Ltd.'s ability to secure the computer chips the Shenzhen-based firm is seeking to pursue its 5G infrastructure rollout.
And on Aug. 6, President Donald Trump signed executive orders banning Beijing-based ByteDance Ltd.'s popular TikTok video-sharing app while barring U.S. persons, on national security grounds, from transactions related to Shenzhen-based Tencent Holdings Ltd.'s WeChat overseas messaging and mobile payments app. That app, together with its ubiquitous mainland counterpart offered by Tencent on the mainland, boast more than 1.2 billion monthly users.
The Hong Kong-listed shares of Tencent — one of the world's 10 largest companies by market capitalization — ended its Aug. 21 trading day at HK$518 ($66.84), down 6.8% from their near all-time high close of HK$555.50 for the session before Mr. Trump's announcement. Hong Kong's Hang Seng index edged up 0.7% over the same period.
Like other social media stocks, Tencent has thrived this year as the coronavirus pandemic found locked-down populations in the region glued to their smartphones. Even after its retreat this month, the company's stock remains up more than 37% from the start of the year.
Market participants say much remains unclear regarding how much bite Mr. Trump's executive order will have, and whether the focus of investors should be on short-term ripple effects or potentially longer-term changes to the fundamental outlook for Chinese companies.