Summary of Key Points from the Conference Call Industry and Companies Involved - Industry: Chinese Military Companies and US-China Relations - Companies: Tencent (0700.HK) and CATL (300750.SZ) Core Points and Arguments 1. Inclusion in Military Company List: On January 6, the US Department of Defense added Tencent and CATL to the Chinese Military Companies list, which now includes 134 companies. This led to a stock price decline of 7% for Tencent and 3% for CATL on January 7, compared to the HSCEI's -1% and CSI 300's +1% [2][3][12] 2. No Immediate Trading Restrictions: The inclusion in the Section 1260H list does not impose immediate restrictions on trading securities of these companies. However, if they are added to the OFAC's NS-CMIC list, US persons would be prohibited from purchasing their publicly traded securities [2][6] 3. Potential Selling Estimates: If Tencent and CATL were added to the OFAC's NS-CMIC list, it is estimated that there would be US19 billion of passive selling for Tencent, and US1 billion for CATL, respectively [2][6] 4. Historical Context: Previous instances of Chinese stocks being added to the Communist Chinese Military Company List saw an aggregate correction of 8% in the first two months, followed by recovery due to strong Southbound buying [2][21] 5. Market Volatility: The combination of escalating US-China tensions, tariff uncertainties, and muted policy actions from China suggests a volatile period for Chinese equities until clearer policies are established [2][12] Additional Important Content 1. US Investor Holdings: US investors currently hold approximately US5 billion in CATL (3% of market cap). If divestment occurs, it could take around 200 days for Tencent and 18 days for CATL, assuming daily selling does not exceed one-third of average daily trading volume [7][10] 2. Impact of Non-US Investors: Non-US passive investors may also sell restricted stocks, with an estimated US0.6 billion market cap of Tencent and CATL held by non-US ETFs [8] 3. Domestic Investor Support: Southbound and domestic Chinese investors are expected to provide capital support if foreign investors divest. Historical data shows that strong domestic buying can offset foreign selling [10][12] 4. Share Buybacks: Companies may seek to buy back shares to support stock prices. Tencent had a record buyback of US$193 million on January 7 [11] 5. Long-term Market Implications: The addition of Tencent and CATL to the US CMC list highlights the complex state of US-China trade relations, indicating potential for increased friction in capital markets and geopolitics [12][29] This summary encapsulates the critical insights and implications regarding Tencent and CATL's recent designation and its potential impact on the market and investor behavior.
China Musings_ Assessing potential implications of Tencent and CATL being added to the Chinese Military Company List
ATTRACTOR·2025-01-12 05:33