Companies could flock to list in Hong Kong or Chinese domestic markets if the U.S. places restrictions on investments in China, according to analysts.
The White House is reportedly considering some curbs on U.S. investments in China, amid the prolonged trade dispute between the two countries. That includes delisting Chinese stocks in the United States, and limiting investments of government pension funds in the Chinese market.
If that comes to pass, it could affect not just the Chinese, but also U.S. markets, said EY's Ringo Choi, Asia Pacific IPO leader.
"It would ... hurt everyone," he said. "But if they did do that, I think a lot of companies will come to Hong Kong, plus list in domestic markets like STAR board." Choi was referring to China's Nasdaq-style tech board that was launched in July — named the Science and Technology Innovation Board, or "STAR Market."
U.S. stocks dropped on Friday after the reports. Shares of Alibaba, Baidu and other Chinese companies listed in the U.S. plunged following the news.
Pivoting away from the U.S. would be good news for Hong Kong, which has seen proceeds from initial public offerings drop 46.8% compared to the same period last year, according to data from Refinitiv. It is also the lowest since 2017, according to Refinitiv.
In a note on Monday, Singapore bank DBS pointed out that Chinese companies have several listing options, including Hong Kong.
"Since Chinese stocks have several alternative listing options, ranging from London to Hong Kong to the ever burgeoning on-shore market, losing access to the US would be negative but not devastating," said strategists Philip Wee and Eugene Leow in the note.
China boasts the world's second-largest equity market, just behind the U.S. More foreign capital is expected to flow into mainland Chinese stocks with their inclusion in major stock indices such as global index provider MSCI and the Bloomberg Barclays Global Aggregate Index.
The inclusion of Chinese stocks in such indices mean that many American investors have access to Chinese markets through mutual funds and other products.
Many Chinese companies also choose to list in the U.S., which is traditionally a more attractive environment for investors, with better valuations and a more knowledgeable investor base.
— CNBC's Evelyn Cheng contributed to this report.
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