There are talks and the possibilities of laws that may affect your ability to buy and own Chinese companies listed on US markets meaning the future of Chinese stocks may be uncertain. The latest reason behind these possible actions concerns the Chinese electric car company Kandi Technologies. The House will have voted Wednesday on a bill that is named Holding Foreign Companies Accountable Act. If this act passes, it could lead to the delisting of such Chinese stocks like Alibaba, JD.com, Nio, and many others. For more assistance seek out a fee-only Registered Financial Consultant.
With the news that these companies face delisting, they all fell in trading Monday, November 30th. Alibaba fell 4.9%, where e-commerce rivals JD.com and Pinduaduo fell 4.5% and 3.6%, respectively. And Nio fell a staggering 6.4%. Granted, Monday was a down day for stocks in general, but these and other Chinese listed companies lost on the news that the bill could pass the House as it has already passed in the Senate back in May. As a result, Chinese companies could be delisted within the next three years. To avoid this action, the companies would have to agree to fall under the Public Company Accounting Oversight Board’s supervision.
However, the Chinese government has made it illegal for Chinese auditors to allow themselves to be submitted to scrutiny from overseas regulators. The reason is they claim it is a matter of national security. While it seems that the bill has better than average chances of being passed, a Chinese hard-line would doom the listing of Chinese stocks on the US markets that have a combined value of more than $2 trillion.
But the sage is not over here as the Treasury Department has to implement the law and any regulations that will implement the law that Congress passes. Back in August, the policy group led by Treasury Secretary Steven Mnuchin offered a more lenient approach to the situation. As a workaround for the Chinese government not allowing the companies to allow the PCAOB to review the Chinese auditors’ work, they would allow Chinese companies to hire US accounting firms to perform the work.
The negative side of this approach is that it may be difficult for the US accounting firms to verify the accuracy of the secondary data they would base their review on under the proposed regulations. But this could save Wall Street many billions it has staked to the revenue of the listing of Chinese stocks on the US markets. These more flexible rules may be brought before the commission for a vote.
Some history behind allowing Chinese stocks to be listed occurred in 2013 when the PCAOB agrees to list the companies without fully meeting the required disclosure and transparency levels. This action lets large Chinese companies such as Alibaba be listed on the US exchange. Between 2013 and 2020, many Chinese companies raised approximately $60 billion through more than 140 offerings. But the PCAOB is now stating that the Chinese have not lived up to the agreement, and it left them in a position not to protect investors.
If these Chinese stocks are delisted, there are a few ways in which you will be able to buy Chinese stocks. The easiest way in which to do this is through the use of mutual funds and exchange-traded funds. For more on buying ETFs please visit https://kgmeyerpc.com/selecting-an-etf-2/. Another option is to purchase Chinese stocks listed in the Hong Kong market using a Registered Financial Consultant with access to foreign exchanges. To see what Alibaba is listed as on the Hong Kong market see https://finance.yahoo.com/quote/9988.HK?p=9988.HK&.tsrc=fin-srch. While not all Chinese stocks listed in the US are also listed on the Hong Kong markets, many are worth considering if they are delisted from the US markets.
For more assistance on the future of Chinese stocks and the purchase of mutual funds or ETFs or the opening of an account that can trade on foreign markets, feel free to contact me directly.
