United States: In June 2019, the governor of Texas instructed state agencies to refrain from investing in China and to divest from China where possible for financial and security reasons – a first sign of how the U.S.-China confrontation would start to affect FDI flows on a global scale.
New Directive for Texas Agencies
Greg Abbott, the Republican, stated in a letter to state agencies on November 21, posted to his website, that the aggressive action by China’s ruling Communist Party made investment risks in Texas higher and ordered investors to leave, as reported by Reuters.
“I direct Texas investing entities that you are prohibited from making any new investments of state funds in China. To the extent you have any current investments in China, you are required to divest at the first available opportunity,” he said.
Texas has been getting more assertive about its agencies’ investments recently, and in 2020, the state banned its public pension funds from investing in Wall Street firms that have embraced ESG principles.
Impact on Texas Investment Funds
Some of its state agencies are the Teacher Retirement System of Texas, which reported an asset of $210.5 billion as of the end of August in its annual report.
The TRS currently has approximately $1.4 billion invested in the Chinese yuan and Hong Kong dollar, and the fund also ranks Tencent Holdings (0700. HK) as the number 10 holding with about $385 million market value at the current exchange rate.
In the letter, Abbott had claimed that he informed the University of Texas/Texas A&M Investment Management Company (UTIMCO), which oversees almost $80 billion, to exit China this year.
Texas Teachers have not replied to a request for comment outside business hours, and UTIMCO also did not respond.
Market Reactions and Broader Sentiment
Chinese markets tumbled sharply on Friday, with the Shanghai Composite index down 3%. Tencent’s shares were at least 2% down in the afternoon trade in Hong Kong, though it was hitting the broader market.
Dealers stated that trade has been thin in Hong Kong and the sentiment bearish as authorities in China have let expectations down over the economic recovery, but the news has not only impacted the sentiment, as reported by Reuters.
“Even though we all know that there will be more and more policies against China from the U.S…. whenever there’s any news like this, it will hit the sentiment here,” said Steven Leung, executive director at brokerage UOB Kay Hian in Hong Kong.