Delisting of China shares

9 December 2021
As regulatory risks in China rise, investors should reduce their exposure to US-listed Chinese stocks, said Jack Siu, director of Greater China investment at Credit Suisse.

"Uncertainty about ... regulatory events poses risks for investors over the next 12 to 18 months", Siu said in an interview with CNBC's "Street Signs of Asia" on Thursday.

“As a result, we think it makes sense for holders of these shares to ... diversify, hedge their exposure, perhaps switch to some of the dual-listed Hong Kong stocks to hedge against this delisting risk.”he added. .

The U.S. Chinese ADR market came under pressure as investors were spooked by a series of tightening regulations in Beijing last year that hit sectors from technology to education to real estate. ADRs are American Depository Receipts that serve in place of shares of foreign companies listed in the US.

Many companies targeted by Chinese regulators have ADR listings in the US. Last week, Chinese giant Didi announced its decision to delist them from the New York Stock Exchange and list in Hong Kong instead.

Further regulatory action may be taken, Siu said. He explained that one Chinese media outlet had reported that regulators would need onshore funds to spin up their positions in foreign-listed securities over time.

Meanwhile, the US Securities and Exchange Commission has finalized rules to allow the regulator to delist foreign stocks if companies do not meet audit requirements.

In recent years, a growing number of US-listed Chinese companies have sought dual listings on the Hong Kong Stock Exchange. These include e-commerce giants Alibaba and JD.com, as well as social media platform Weibo.

Be careful with China

“This is not yet the time to actively invest in Chinese equities,” Siu said.

The CIO explained that there is still regulatory uncertainty, especially in "strategic sectors" and that it could continue until March next year.
In addition, analysts have not raised their profit forecasts for Chinese companies, and funds have not returned to the Greater China markets, he said.

“In general, things are not improving for companies”Sioux said. He added that investors should stay in sectors supported by Chinese regulators, such as renewable energy and electric vehicles.

Source CNBC
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