Morgan Stanley Seeks Authority for Majority Stake in China JV

After becoming the largest shareholder in its China mutual funds joint venture — Morgan Stanley Huaxin Fund Management Co, Morgan Stanley MS now wants to acquire majority ownership of one of its joint ventures in the country. However, the company’s chief executive officer (CEO), James Gorman said that the country’s regulators have not yet given their approval on the same. The news was first reported by Reuters.

In addition to this mutual funds joint venture, Morgan Stanley also has a securities joint venture with Huaxin Securities. In 2017, the company raised its stake in this securities joint venture to 49% and expressed an interest in increasing it further.

While Morgan Stanley did become the largest shareholder in its mutual funds joint venture in April, it still remains a minority owner.

And, while no particular joint venture has been mentioned, the company does intend to gain majority ownership of one of its two China joint ventures now.

At the International Economic Forum of the Americas in Montreal, Gorman stated, “China is, I think, the only country in the world where we do business (and) don't have 50% or more ownership of our business. That is unacceptable.”

Notably, Gorman said that he did interact with the regulators in China recently to seek authority to obtain majority stake in one of its joint ventures. While the regulators did discuss the matter with him, the idea has not been signed off as yet.

This is because the increasing U.S.-China trade war-related tensions are having an adverse impact on the economies of both countries. Gorman added, “There’s a hardening of attitudes on both sides.”

Global investment banks’ expansion has been limited in China for the past few years due to restrictions imposed on ownership.

However, in recent times, China eased restrictions in its financial markets, allowing greater foreign participation. Indicating its readiness to allow greater access to global banks into the country’s financial markets, the China securities regulator now allows foreign companies to increase their stake to 51% in securities joint ventures, up from the existing ceiling of 49%.

Notably, JPMorgan JPM and Nomura Holdings Inc. NMR already received regulatory nod for setting up brokerage joint ventures in China. Last December, UBS Group AG UBS became the first foreign bank to receive the regulator’s consent, since the rules on foreign investment in brokerages were announced in 2017.

Shares of Morgan Stanley have gained 7.5% over the past six months, outperforming 6.7% growth of the industry.

Currently, the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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