This week, I focused on several major Asia tech and finance stories that will radically reshape the divide between the U.S. and China. Several of these stories have been issues debated for years that are now seeing resolution, such as MSCI’s decision below. It’s a constant reminder in Silicon Valley that despite the region’s power in tech, many others around the world are plotting to compete effectively.
China is launching a new financial vehicle known as Chinese Depository Receipts, which are mirrors of a similar vehicle in the United States known as American Depository Receipts. This mechanism allows local investors to invest in foreign companies, without the logistics of moving money across borders or handling foreign account holdings. In other words, it dramatically expands the pool of capital for companies, which can drive up their valuations. Given that most Chinese tech companies are based outside of mainland China, the CDR mechanism will allow many of them to access mainland investors for the first time.
This was a major story in the U.S./China trade war over the past few weeks. In the end, it looks like the Trump administration voted to merely penalize the company rather than kill it. The sudden shock that the U.S. could just shut down a major Chinese company though is now being called the country’s Sputnik Moment, and has already pushed the CCP to double down on indigenous tech development.
MSCI will include domestic Chinese A-shares for the first time. Given that trillions of dollars are indexed against MSCI’s emerging markets indicators, the decision will likely mean that billions of dollars of capital from the U.S. will be invested into Chinese equities, which are denominated in RMB. Like CDRs, the policy decision here portends huge capital inflows into China, and represents the further financial muscle of the Middle Kingdom.
M17 is a Taipei-based live streaming and entertainment company. It priced its IPO last week, but then never traded. No one seems to know why. The company has grown rapidly but massive revenue concentration complicates the story here.
Photo by Lain used under Creative Commons.
Posted on June 11, 2018