The five companies identified by the SEC have until March 29 to submit evidence disputing the SEC’s identification under the HFCAA law. The SEC ultimately has the power to delist the Chinese stocks if for three straight years they do not allow a US accounting firm to conduct an audit of its financial statements.
Popular Chinese stocks like Alibaba plunged as much as 10% on Thursday after the regulatory agency identified five Chinese companies for potential delisting from US exchanges due to inadequate disclosures.
The 5 companies identified by the SEC were BeiGene, Yum China Holdings, Zai Lab Limited, ACM Research, and HUTCHMED Limited. Shares of Yum China, which owns the franchise rights to KFC and Taco Bell in China, fell as much as 15% following the SEC notice. In Shanghai, shares of ACM Research Shanghai Inc were down 10%.
The SEC’s decision comes after the Holding Foreign Companies Accountable Act became law on December 18, 2020. The law requires the SEC to identify publicly traded foreign companies on US exchanges that will not allow a US auditor to fully inspect their financial books. This is the first time the SEC identified companies since the law went into effect.
Alibaba plunged as much as 10% on Thursday after the SEC identified five potential Chinese stocks for potential delisting from US exchanges
One of the stocks identified by the SEC included Yum China, which fell as much as 15%
The companies identified by the SEC for potential delisting can respond with information to prevent the delisting.
Hong Kong-listed tech giants led a broad slump in Chinese stocks on Friday after the U.S. Securities Exchange Commission (SEC) identified Chinese companies that will be delisted if they do not provide access to audit documents.
The Hang Seng Tech Index plummeted nearly 9%, dragging the Hang Seng Index down about 4%, while China’s onshore CSI300 Index dropped 2.4%.
China’s securities regulator said on Friday it is confident it will reach an agreement with U.S. counterparts on securities supervision.
In the note posted on its official WeChat page, the China Securities Regulatory Commission (CSRC) said that together with the Ministry of Finance, it has continued to communicate with the U.S. Public Company Accounting Oversight Board and has made “positive progress”.
The Nasdaq Golden Dragon China Index tumbled 10% on Thursday to its lowest level in nearly six years.
“Wall Street has always been skeptical toward Chinese companies, and it’s getting more so. And such worries are being taken into investors’ consideration,” said Michael Qian, a banker at Bundstone Capital Partners.
In response to the SEC statement, Yum China, which owns KFC, Taco Bell and Pizza Hut restaurants in China, said it may have to delist from the New York stock exchange by 2024.
The SEC’s naming of the firms has added to pressure on already shaky Chinese equity markets, reeling from factors including economic concerns, the Ukraine conflict and the announcement this week by Norway’s sovereign wealth fund that it was excluding Chinese sportswear maker Li Ning over human rights concerns.
Major Chinese companies and state media have mounted a concerted effort this week to reassure investors that the country’s economic and market fundamentals are strong, as markets have dropped to more than 20-month lows.
The fresh worries on Friday even weighed on Hong Kong’s currency amid heavy outflows from Hong Kong-listed shares, traders said. The Hong Kong dollar slipped nearly 0.1% to 7.8296 per U.S. dollar, its weakest since Dec. 9, 2019.
China’s yuan was also softer, trading at 6.3251 per dollar as rising risk aversion lifted the greenback.
Linus Yip, chief strategist at First Shanghai Group, said that although the SEC move was not totally unexpected, investors were interpreting it negatively given heightened geopolitical tensions.
“The atmosphere now is bad. We have Sino-U.S. frictions, the Ukraine crisis, prospects of rate hikes and more,” Yip said. “So it’s natural for investors to look on the dark side.”
However, he said oversold stocks that will be little-affected by the SEC rules, such as Tencent, would provide buying opportunities.
Analysts at Citi said in a note that any real risk of de-listing would not likely materialise until 2024 or 2025.
“We suggest buying big cap ADRs that already have dual-listing in HK.”
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