Lately, Chinese stocks are witnessing deep plunges in their share values. So, what is going on? A further step by the Securities and Exchange Commission toward forcing companies from China off American exchanges helped trigger the worst decline in U.S.-listed Chinese stocks since the global financial crisis, and sparked a selloff in Hong Kong.
Steep Drops in Chinese Stocks
The steep drops add to a punishing period for Chinese shares—some of which have now lost 40% or more in value over the past six months. They have already been buffeted by a series of regulatory crackdowns from Beijing, and have been caught up in the broader market unease sparked by elevated inflation, the war in Ukraine and the prospect of rising U.S. interest rates.
The Nasdaq Golden Dragon China Index of China-focused U.S.-listed companies closed 10% lower Thursday, marking its biggest one-day percentage decline since October 2008, Refinitiv data showed. On Friday in the U.S., renewed selling pushed the index down another 10%, leaving it around levels it hasn’t plumbed in more than five years.
Current Values of stocks
In Hong Kong trading Friday, shares fell steeply before recouping some of their losses. The city’s Hang Seng Index ended 1.6% lower, while the Hang Seng Tech Index retreated 4.3%. On Thursday, the SEC provisionally named five companies, including the biotechnology group BeiGene Ltd. BGNE -12.21% and Yum China Holdings Inc., YUMC -15.51% the operator of KFC in China, as firms whose audit working papers couldn’t be inspected by U.S. regulators.
A 2020 law, the Holding Foreign Companies Accountable Act, would ban trading in securities of companies whose audit papers can’t be checked for three years in a row. Strategists at Morgan Stanley said they expected the SEC to add more names to the provisional list in the coming weeks, as those companies released their annual reports. In a statement, Andy Maynard, head of equities at China Renaissance said, “We’re definitely in some complete dislocation when it comes to sentiment and China. This is just another nail in the coffin for investors when it comes to China and especially ADRs.”
Future Scenario of Stocks
China’s securities regulator said it continued to engage with the U.S. Public Company Accounting Oversight Board, the federal audit watchdog overseen by the SEC. In a statement Friday, it said it respected foreign regulators overseeing accounting firms but opposed the politicization of securities regulation. Yum China said as things stood, it would be delisted from the New York Stock Exchange in early 2024 unless it was excluded from the law or its auditor could be fully inspected. The company will continue to monitor market developments and evaluate all strategic options.
Another of the named companies, Zai Lab Ltd., was working toward hiring an accountancy firm whose work could be inspected by U.S. regulators. The company’s provisional identification does not mean that the company is about to be delisted by the SEC from Nasdaq. Bankers and lawyers say Chinese companies are now looking more actively at listing by the introduction in Hong Kong—a way of going public that doesn’t require a company to raise capital or sell new shares. Onshore Chinese shares have been comparatively shielded from the regulatory pressure that has pummeled their offshore equivalents. The CSI 300 index rose 0.3%, rebounding from some losses from earlier in the day.