by BLOOMBERG

SOME of the biggest Chinese tech firms are seeing investors boost their proportion of Hong Kong-traded shares away from American Depository Receipts, as tougher U.S. regulatory oversight and elevated bilateral tensions darken the prospects for such firms on Wall Street.

Nine Chinese firms that have a U.S. primary listing and either secondary or dual primary-listed status in the Asian financial hub have seen increased proportion of Hong Kong shares in the past year, according to Bloomberg calculations based on exchange data available through January 2021.

Alibaba Group Holdings Ltd. and JD.com Inc. led the pack, with the conversions nearly doubling. ADR holders can hand their U.S. shares back to the depository bank to register a conversion, which then swaps them into Hong Kong-listed shares at a set ratio.

The development adds to the momentum of financial decoupling between the world’s two largest economies, reversing a trend that has helped nurture some of China’s most influential companies and enriched global banks and investors via New York-bound share floats in the last two decades.

While the so-called “homecoming” of more U.S.-listed Chinese firms and their trading to Hong Kong will help defend its status as a financial center, the disproportionately thin liquidity in the city’s stock market may pose a challenge for investors.

“Clearly the ADR delisting risk is the key driver of this liquidity shift,” said Vivian Lin Thurston, a portfolio manager at William Blair Investment Management, referring to the certificates that are equivalents of shares in foreign firms.

Under a law signed by U.S. President Donald Trump a month before he left office, Chinese firms may face delisting starting in 2024 if they refuse to show financial information to American regulators. Converting shares from the U.S. to Hong Kong enables investors to minimize that risk.

“In the case of forced ADR liquidation or restrictions for investors to trade ADRs in the U.S., most foreign investors would still be able to keep their exposure to these stocks via their Hong Kong listings,” said Jessica Tea, investment specialist at BNP Paribas Asset Management Asia.