No Executive Order Means No Problem For US Investors

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Asian equities were mixed but mostly higher overnight as Mainland China outperformed while Hong Kong and the Philippines underperformed.

The US Department of Defense (DOD) added CATL and Tencent to its Blacklist. Tencent fell -7.28% in Hong Kong overnight while CATL fell by only -2.84% in Mainland China. This reflects the differences in reactivity to foreign breaking news for international investors in Hong Kong versus mostly local investors in Mainland China. Neither company has a sponsored American depositary receipt (ADR) though Tencent has unsponsored ADRs, which fell over -6% in the US yesterday. Many brokers reiterated their Buy ratings on the stocks following the news.

Crucially, the blacklist is only a list of companies that the DOD cannot do business with. It is not an investment ban. An executive order would be required for the additions to this list to be added to a restricted investment list. The Biden Administration is likely trying to push through as much policy as possible before Trump takes office. As we have said before, we have good reason to believe that Trump’s approach to China will differ significantly.

It is also important to note that Xiaomi successfully challenged the designation a while back. Both CATL and Tencent have protested the inclusion on the list, saying it was a “mistake” and that they do not do any defense-related business.

Camera security company Sense Time says being added to the list has absolutely no impact on its business. The company has been restricted for US investors since a Trump Executive Order.

Semiconductor company Luxshare rose +3.77% on the approval of its acquisition of automotive supplier Leoni.

According to Sina Finance, live streaming is estimated to have accounted for 80% of the growth in China’s E-Commerce industry in 2024. That is impressive as most people in the West have never purchased an item from a live stream. Douyin, China’s “TikTok”, increased its online gross merchandise volume (GMV) by over +80% in 2024. Bytedance has also launched the TikTok Shop, which includes live streaming E-Commerce, globally. This could be a driver of more online spending globally. Giants JD and Alibaba are also competing in the space to remain competitive.

The Hang Seng and Hang Seng Tech indexes fell -1.22% and -0.92%, respectively, on volume that increased +69% from yesterday. Mainland investors bought a net $1.65 billion worth of Hong Kong-listed stocks overnight via Southbound Stock Connect. The top-performing sectors were Materials, which gained +1.88%, Consumer Staples, which gained +0.38%, and Real Estate, which gained +0.04%. Meanwhile, the worst-performing sectors were Communication Services, which fell -5.77%, Information Technology, which fell -3.65%, and Health Care, which fell -1.66%.

Shanghai, Shenzhen, and the STAR Board all closed higher by +0.71%, +1.60%, and +2.86%, respectively. The top-performing sectors were Information Technology, which gained +3.69%, Consumer Discretionary, which gained +1.62%, and Materials, which gained +1.03%. Meanwhile, the worst-performing sectors were Health Care, which fell -1.60%, Energy, which fell -1.02%, and Utilities, which fell -0.67%.

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