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Global banks, investors and politicians are increasingly shrugging off Washington’s bans on investments in stocks linked to China’s military – will Joe Biden’s administration lead a new America of toothless sanctions?

Three days after it announced that it would halt new investments into Chinese firms sanctioned by the U.S. over military linkages through Hong Kong’s renowned Tracker Fund, State Street Global Advisors (SSGA) Asia reversed its decision and it is business as usual as of today.

The most notable occurrence in between was the public call by both Hong Kong’s chief executive Carrie Lam and the former head of the city’s central bank Joseph Yam Chi-kwong for a manager change, as the asset manager was unable to continue its mandated duty to track the benchmark. 

SSGA is not alone in moving onwards and upwards in the Chinese market with banks and investors also expressing similar optimism in capital flows and market performance.

No Fear of Hub Loss

Although the sanctioned firms are facing selling pressures, some banks and investors do not appear to be in flight mode.

«Obviously, when a company is delisted and deleted from benchmarks, you will see some selling pressure. But aside from that, I don’t think there is going to be lasting impact because these companies derive their business and revenue from China, almost entirely,» said Ken Peng, Citi Private Bank's Asia head of investment strategy in a virtual webinar yesterday.

«Yes, they have some funding from the U.S. market which is facing some difficulties but they can they can raise additional funds either in China or Hong Kong, or, if they want, Europe or Singapore.» 

Buy on Dip

For some investors, Washington’s sanctions have not even warranted a wait-and-see approach. Several hedge funds have reportedly sought to buy on dips for their attractive dividend yield in light of the low rate environment and correction, albeit in small amounts, such as Long Corridor, according to an «SCMP» report.

«In fact, Monday was a record for [southbound trading volume through the Stock Connect program] – both Shenzhen and Shanghai – with HK$44 billion ($5.7 billion) of buying volume in one day,» Peng added.

The «impact of US investment ban could be largely done,» said an analyst note by Jefferies earlier this month, also highlighting considerable buying demand from mainland investors.

U.S. Sanctions: New Chapter?