For U.S.-Listed Chinese Tech, One Minute to Midnight
U.S. markets will soon have fewer Chinese stocks. One big probable winner: Hong Kong.
By Jacky Wong
Wall Street Journal
March 11, 2022 6:04 am ET
The clock is ticking a lot louder for Chinese stocks listed in the U.S. The big winner may ultimately be a key rival to U.S. bourses: the Hong Kong exchange.
The Securities and Exchange Commission said on Thursday it has named five companies for failing to hire an auditor that could be inspected by U.S. regulators. These companies include Chinese companies like Yum China, YUMC -11.47% the operator of KFC and Pizza Hut in the country, and biotech company BeiGene. BGNE -10.60% Under legislation passed in 2020, they could be delisted if U.S. regulators can’t review their audits for three consecutive years—meaning 2024 at the earliest.
The announcement isn’t unexpected—the SEC said in December that 273 U.S.-listed foreign companies may not meet the requirement. But U.S.-listed Chinese stocks still suffered a big selloff on Thursday: Shares of Chinese e-commerce giant Alibaba fell 8% in New York, while its rival Pinduoduo lost 17%. Even though these companies aren’t on the list, it is likely only a matter of time. The five companies identified on Thursday were likely flagged first because they have recently filed annual reports to the SEC.
The dispute over accounting has long been simmering, but the deteriorating relationship between the U.S. and China has brought it to a boil over the past year. China has deemed some information too sensitive to pass over to the U.S. on national security grounds—particularly for consumer tech companies whose bread and butter is Big Data—and therefore refused to allow auditors to show their books to U.S. regulators.
China’s securities regulator said Friday that it opposes politicizing securities regulations, but said discussions with U.S. regulators have made progress and that it believes they can reach mutually acceptable arrangements.
Most of the largest U.S.-listed Chinese companies have already prepared for this eventuality by making another listing in Hong Kong. Electric-car maker NIO Inc. is the latest to join the list: It made its debut in the city on Thursday.
Shares of Hong Kong Exchanges and Clearing rose 3% Friday as the city is expected to benefit from a potential exodus from the U.S. In a note last week, Goldman Sachs estimated that if all the shares of dual-listed Chinese companies are moved to Hong Kong, that could add around $2.6 billion of average daily turnover to the city. New listings could add another $1.4 billion. That means they could make up around a fifth of Hong Kong’s turnover.
There are still more than 200 Chinese companies solely listed in the U.S., though they are usually smaller and only make up around 30% of the total market value of the U.S.-listed Chinese stocks, according to Goldman Sachs.
The selloff seems overdone given that the issue has long been expected. But since the geopolitical situation has become more treacherous recently due to Russia’s invasion of Ukraine, investors may prefer to stay on the sidelines.
In any case, Chinese tech stocks have been out of favor for some time already due to China’s regulatory risks. The Kraneshares CSI China Internet exchange-traded fund, which tracks offshore Chinese technology listings, has lost three-quarters of its value since February last year.
The writing has long been on the wall for U.S.-listed Chinese companies. The latest announcement just made it even clearer.
For U.S.-Listed Chinese Tech, One Minute to Midnight - WSJ |
