A global wealth manager said Chinese companies listed on Wall Street are likely to be kicked out of US capital markets in the next three years, as tensions between Beijing and Washington show no signs of reduction.
Source: Asian Financial
“I think for a lot of Chinese companies listed in U.S. markets, it’s essentially game over,” David Loevinger, managing director of emerging markets at TCW Group, told CNBC. “This is an issue that’s been hanging out there for 20 years — we haven’t been able to solve it.”
The US Securities and Exchange Commission (SEC) this month finalized rules that would allow market regulators to delist shares of foreign companies in the US market if insufficient auditing information is provided.
The Holding Foreign Companies Accountable Act (HFCAA) was passed in 2020, after Chinese regulators repeatedly rejected requests from the Public Company Accounting Oversight Board (PCAOB) on examining the audit records of Chinese companies listed and traded in the US.
Given the distrust between the US and China and the unlikely improvement in bilateral relations anytime soon, Loevinger believes that there is no way this issue can be resolved in the next few years.
” So the reality is, I think, by 2024, most Chinese companies listed on U.S. exchanges are no longer going to be listed in the United States. Most are going to gravitate back to Hong Kong or Shanghai,” he said.
Source: Financial Times
When a company is removed from an exchange like the Nasdaq or the New York Stock Exchange, it becomes inaccessible to a large number of buyers, sellers, and intermediaries.
Tech giant Didi Global Inc. ride-hailing app Didi Chunxing angered Chinese regulators by its decision to list in the US without first addressing outstanding cybersecurity concerns. Regulators have asked the board of directors to come up with a plan to delist from the US due to data leak concerns.
In addition to Didi, many of the top Chinese technology companies listed in the US have also made listings in Hong Kong. Some of those well-known names include e-commerce giant Alibaba, JD.com, technology company Baidu, gaming firm NetEase and social media giant Weibo.
Loevinger, referring to Didi’s announcement of delisting from the New York Stock Exchange, said: ” We have already hit the turning point. I just don’t think China’s government is going to allow U.S. regulators to have unfettered access to internal auditing documents of Chinese companies. And if U.S. regulators can’t get access to those documents, then they can’t protect U.S. markets from fraud.”