US-listed Chinese stocks plunged in Monday’s trading as fears of delisting reached the trading floor. Many stockholders began selling off their Chinese ADR holdings, including big names such as Alibaba, Baidu, and JD.com.
SEC Lists Five Chinese Stocks In Danger of Delisting
Last week, the Securities and Exchange Commission listed five US-listed Chinese companies that did not comply with Holding Foreign Companies Accountable Act regulations.
Once the list went out, investors began selling off their Chinese stocks for fear of getting caught holding the bag. The New York Stock Exchange allows the trading of foreign companies’ stock under an American Depository Receipt (ADR) arrangement.
The HFCAA gives the SEC the authority to delist or ban companies from trading on US exchanges for audit violations. If regulators cannot review company audits for three straight years, they can choose to ban these companies.
In a report released Thursday, the SEC identified the five companies that have yet to submit to audit reviews. Three are biotech companies: BeiGene, Zai Lab, and Hutchmed.
The remaining two are semiconductor subcontractor ACM Research and restaurant group Yum China. The latter holds the franchise rights for KFC, Taco Bell, and Pizza Hut in China. Yum China dwarfs the other four companies in terms of market cap and revenue.
Big Names In Chinese Stocks Also Plunge As Delisting Fears Surround Market
As a result, investors began dumping other Chinese ADR firms as well. This includes the big names such as Alibaba, Baidu, and JD.com, who lost between 8 to 10% of their value yesterday.
Previously, Alibaba fell 12% last week. The Chinese online retail giant already lost more than 34% of its value since the start of 2022. Meanwhile, Baidu fell by 14% last week and is now 27% since January 1.
Big stock names including Alibaba, Baidu, and JD.com fell more than 10%, 8%, and 10%, respectively, on Monday.
Alibaba fell 12% last week and is down more than 34% since the start of the year, while Baidu plunged 14% and is down 27% year-to-date.
Banks Downgrade Chinese Stocks
Meanwhile, banks also went into action to mitigate the damages. JPMorgan Chase demoted the ratings of major Chinese companies amid the selloff.
The bank downgraded Alibaba, Baozun, Bilibili Inc, Dada Nexus, DouYu, Huya, JD.com, and KE Holdings to “Underweight”. It also slashed the price targets on some.
JPMorgan Chase analysts issued a note explaining the decision. Due to global tensions and risks, they said that many investors are pulling back from the Chinese Internet sector.
Led by Alibaba, the analysts said that Chinese stocks will continue to “face stock selling pressure in the near term.”
Coronavirus Fears Surface Again in China
The selloff of US-listed Chinese firms could not have come at a worse time. The overall China market is down amid a fresh outbreak in the mainland.
Beijing officials recently shut down Shenzhen, a major global technology hub that houses top manufacturing plants. Among the casualties of the shutdown is Foxconn, Apple’s biggest supplier. The stock of the Silicon Valley traded 2 lower due to Foxconn’s temporary shutdown.
Meanwhile, other investors fear China’s inclination to back Russia in its ongoing war with Ukraine. Reportedly, Moscow asked China for military aid to help backfill its inventory as its invasion of Ukraine continues.
As a result, the US already made initial warnings that China might face secondary sanctions if it insisted on helping Russia skirt economic sanctions.
Watch the CNBC Television news video reporting that China tech stocks plunge after fears of U.S. delisting resurface:
Do you trade in Chinese stocks on the NYSE? Do you see these companies eventually complying with US regulations in order to retain their US market presence?
Or, do you see them getting removed one by one by the SEC? Share your thoughts below.