Alibaba, Tencent Drop in Hong Kong as U.S. Weighs Investment Ban

(Bloomberg) -- Alibaba Group Holding Ltd. and Tencent Holdings Ltd. tumbled in Hong Kong after reports that the Trump administration may bar investments in China’s two most valuable companies.

Alibaba fell 3.9% and Tencent dropped 2.7% in Hong Kong premarket trading on Thursday, tracking losses in their New York-listed securities. The State Department, Department of Defense and Treasury Department are among authorities involved in the deliberations, according to people with knowledge of the talks. The discussions focus in part on how such a move might affect capital markets, the Wall Street Journal reported earlier Wednesday.

Imposing a ban on the two companies would mark the most dramatic escalation yet by the Trump administration, given the sheer size of the two firms and the difficulty unwinding positions. At $1.4 trillion, the combined market value of their primary listings is twice the size of Spain’s stock market, while the firms together account for about 11% of MSCI Inc.’s emerging markets benchmark.

“If the bans are implemented then it’d be a huge thing for the market,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. “It’s still too early to say. After the Biden administration starts, the policy could change again.”

Representatives for the companies had no immediate comment when contacted.

The closely-watched iShares China Large-Cap ETF fell 1.2% in the U.S. while the NASDAQ Golden Dragon China Index, which tracks other large Chinese technology stocks, dropped 2.1% for its worst day since November. JD.com slipped 7.7%.

U.S. authorities have been ramping up efforts to deprive Chinese companies of U.S. capital in the final months of President Donald Trump’s administration, adding to economic tensions as President-elect Joe Biden prepares to take over this month.

Citing national security, Trump previously signed an executive order in November requiring investors to pull out of Chinese companies linked to that nation’s military. On Tuesday, Trump signed an order banning U.S. transactions with eight Chinese apps including Ant Group Co.’s Alipay and Tencent’s digital wallets. It will be up to Biden to decide whether to enforce that policy once it takes effect.

Hasty measures have at times sown confusion in markets and prompted price swings, such as when the New York Stock Exchange reversed course twice this week on a decision to delist three Chinese telecommunications companies. The NYSE is now proceeding with its original delisting plan after U.S. Treasury Secretary Steven Mnuchin disagreed with its decision to give the companies a reprieve.

The order bans trading in the affected securities starting Jan. 11. If Biden leaves Trump’s executive order in place, U.S. investment firms and pension funds would be required to sell their holdings in companies linked to the Chinese military by Nov. 11. And if the U.S. determines additional companies have military ties in the future, American investors will be given 60 days from that determination to divest.

The potential U.S. ban comes as pressures mount within China on Jack Ma’s Alibaba and Tencent. In recent months, officials blocked Ant Group Co.’s $35 billion IPO, proposed new rules to curb the dominance of internet giants and fined Alibaba and Tencent over acquisitions from years before. Closer scrutiny of mergers and acquisitions could add uncertainty over the growth of large internet firms within China.

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