China has barred foreigners from buying more shares in a Shenzhen-listed laser specialist, after global investors got close to breaching the country’s 30% cap on international ownership for any single stock.
The halt comes days after MSCI Inc., MSCI -0.64% the index compiler, moved to add more companies listed in Shanghai and Shenzhen to its influential benchmarks, giving shares from these two markets more weight in those gauges.
Many nations limit foreign holdings in select industries, but broad restrictions are much rarer, though MSCI research shows they apply in several markets in the Middle East and in Southeast Asia.
Offshore investors had built their holdings in Han’s Laser Technology Industry Group Co. to above 20% from just 7% a year ago via stock connect, a trading link with Hong Kong. Including shares held via the separate Qualified Foreign Institutional Investor program and a second similar program, foreign holdings have hit 28.2%, the company said Tuesday.
Shenzhen’s stock exchange has now told its Hong Kong counterpart to halt purchase orders, Han’s Laser said, until foreign ownership falls below 26%. Sell orders can still proceed.
“It’s a concern to offshore investors”, said Jack Lee, chief investment officer at Schroder Investment Management (Shanghai) Co. He said as more foreign funds flow into Chinese markets, such cases would become more common.
Mr. Lee said international fund managers were worried they might be unable to buy stocks they liked. Such restrictions could also make it harder for index trackers to match benchmarks precisely, he said.
Beijing caps foreign shareholdings for onshore stocks at 30% in total, and 10% for any single shareholder. Chinese stocks are growing in importance to global investors, but outsiders face other constraints in betting on Chinese markets, including trading suspensions and a lack of ways to hedge their risks through futures and options.
Shares in Han’s Laser have leapt 47% this year, giving it a market value of around $7 billion. Its customers include Apple Inc., Sony Corp. and Samsung Electronics Co.
Steven Yang, head of China A-and H-share strategy and products at CLSA, said Han’s Laser was a favorite pick for investors seeking to profit from China’s economic transition, and looking for Chinese companies unlike those listed abroad in Hong Kong or New York.
In 2015, foreigners were blocked from buying into state-owned airport operator Shanghai International Airport Co., after offshore holdings topped 28%. Overall, foreigners held just 2.6% of the onshore, or A-share, stock market by value at the end of 2018, HSBC analysis shows.
Source: The Wall Street Journal
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