Delisting of Chinese Firms Is Latest Volley in Economic “Cold War”

The news over the past few weeks has been almost hypnotizing. It’s lured many of us away from our charts and market research in order to focus on the unprecedented events in Washington.

side-by-side shot of American flag and flag of China
Source: Aritra Deb /
Source: Shutterstock

Unfortunately, those events, which the market pretty much ignored, distracted many of us from global events much more relevant to investors.

For instance, Jack Ma, China’s richest man and the cofounder of Chinese e-commerce giant Alibaba Group Holding Ltd. (NYSE:BABA), has gone missing. In fact, Ma has been missing for a while; the world at large just didn’t notice until recently. He was last seen on a web livestream on October 31.

Just a week before that, Ma publicly criticized China’s state-run banks, reportedly infuriating Chinese President Xi Jinping. This is all amid rumors about China’s investigation into Ma’s company. As The Street writes:

It’s rumored, and quite likely, that Ma has been told not to leave China. He may well be keeping his head under the parapets of his own accord. Whatever the case, the situation is so serious and politically charged that the Beijing government is now reportedly censoring news in the Chinese media about the antitrust probe into Ma’s baby.

Imagine if Apple Inc. (NASDAQ:AAPL) CEO Tim Cook or Jeff Bezos of Inc. (NASDAQ:AMZN) went missing — or even just into hiding — after criticizing the U.S. government. That would be a huge story.

Instead, the “Where’s Jack Ma?” saga is just one of the many major events in China that went underreported here in the past couple of weeks.

Last week, Beijing ordered another crackdown on democracy in Hong Kong, leading to the arrest of more than 50 people. And these suppressions, which follow months of protest after the implementation of a controversial new extradition law in Hong Kong, aren’t over.

After talking with high-level Beijing officials, Reuters reported:

While stressing that plans haven’t been finalized, the individuals said it was possible that Hong Kong elections — already postponed until September on coronavirus grounds — could face reforms that one person said were aimed at reducing the influence of democrats.

If you recall, the pro-democracy protests in 2019 contributed to a massive drop in tourism revenue and caused a dip in the performance of Hong Kong’s benchmark index — the Hang Seng Index.

Hong Kong’s stock market is important because investors use it to buy and sell Chinese assets, so these antidemocratic crackdowns could affect how institutional investors trade Chinese stocks.

And that brings us to one more major news story out of China: the back-and-forth from the New York Stock Exchange regarding the delisting of three major Chinese telco companies.

As CNBC reports:

The NYSE announced on Thursday [December 31] it will remove U.S.-traded shares of China Telecom, China Mobile, and China Unicom from the Big Board to comply with an executive order signed by President Donald Trump. The order sought to bar American companies and individuals from investing in firms that the administration alleged aid the Chinese military.

The exchange reversed this decision on Monday, January 4, and then reversed the decision again on Wednesday, January 6. So it looks like these three companies will be delisted in an effort to comply with President Trump’s executive order.

This back-and-forth caused the companies in question to lose billions in market value and created plenty of confusion in the marketplace.

While these stories were easy to ignore last week because of the dramatic images coming out of Washington, the endless complications they created are just more support for something I’ve been saying for a long time …

The United States and China are now fighting an economic “cold war.”

That means the federal government is shifting billions of dollars to fight that war.

Seismic capital waves like this — from wartime spending to critical infrastructure improvements — always create new investment trends and big profits for those who pick up on them.

Today let’s take a look at one example …

Distancing Ourselves From Beijing

The executive order barring U.S. companies and Americans from investing in firms associated with the Chinese military  isn’t the first of its kind from the Trump administration.

On September 30, the president signed an executive order declaring U.S. reliance on China in rare-earth metals a national emergency.

Rare-earth metals (or elements) are a group of 17 metals that, while not exactly rare, can be difficult to extract in commercial quantities.

These metals contain unique magnetic, heat-resistant, and phosphorescent properties that make them critical to the technology and defense industries. They are key components of missile guidance systems, lasers, electronic displays, radar, and satellites.

That’s what makes them highly strategic resources.

Yet … the United States has to buy 90% of its rare-earth metals from China!

In other words, China could easily cripple major parts of the U.S. military, simply by refusing to ship rare earth metals to us.

According to the U.S Geological Survey, China produced 38% of the world’s rare-earth elements in 1993, and 33% of the supply came from the United States. Smaller percentages came from Australia, Malaysia, Canada, and India.

However, by 2008, China accounted for more than 90% of global rare-earth element production. And by 2011, China accounted for 97% of global production. Just look at this chart:

Simply put, this reliance on China is a gaping hole in our national security.

Our politicians know this and are scrambling to shore it up … with billions of dollars.

Last September, two congressmen from Texas introduced the bipartisan RARE Act — Reclaiming American Rare Earths Act — to create a comprehensive tax incentive program to encourage investment in U.S.-based rare-earth and critical mineral production.

Beyond this, according to Defense News, the Pentagon has “proposed legislation that aims to end reliance on China for rare earth minerals” by earmarking an estimated “$1.75 billion on rare earth elements in munitions and missiles and $350 million for microelectronics.”

Plus, there’s that executive order from October.

When you follow the investment breadcrumbs, it leads you directly to top-shelf rare-earth mining stocks …

Rare Earths Lead to Rare Gains

I recently came out with a special report called Red, White, and Blue Stocks … for a Six-Figure Payday that details a unique rare-earth-metals play, a world-class uranium company, and a mining company.

There are also three additional picks in the report that tap into other trends relating to the escalating economic tensions with China. One such trend – and related companies — will likely benefit from the recent delisting of Chinese telcos.

The effort to shore up this key U.S. vulnerability — and other “stress points” — suggests there are big gains coming.

Find out more here.

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.

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