Tech firms lead China share rout after SEC hints at delistings

Shanghai

HONG Kong-listed tech giants led a broad slump in Chinese stocks on Friday (Mar 11) after the US Securities Exchange Commission (SEC) identified Chinese companies that will be delisted if they do not provide access to audit documents.

The Hang Seng Tech Index plummeted nearly 9 per cent, dragging the Hang Seng Index down about 4 per cent, while China's onshore CSI300 Index dropped 2.4 per cent.

China's securities regulator said on Friday it is confident it will reach an agreement with US counterparts on securities supervision.

In the note posted on its official WeChat page, the China Securities Regulatory Commission (CSRC) said that together with the Ministry of Finance, it has continued to communicate with the US Public Company Accounting Oversight Board and has made "positive progress".

The regulator's comments came after the SEC's naming of 5 New York-listed Chinese stocks that could be delisted sparked a sell-off in their shares.

The Nasdaq Golden Dragon China Index tumbled 10 per cent on Thursday to its lowest level in nearly 6 years.

"Wall Street has always been sceptical towards Chinese companies, and it's getting more so. And such worries are being taken into investors' consideration," said Michael Qian, a banker at Bundstone Capital Partners.

Companies on the SEC list led the slump on Friday. Yum China, Zai Lab, Hutchmed (China) and BeiGene fell between 10 and 16 per cent. In Shanghai, shares of ACM Research Shanghai were down 10 per cent.

In response to the SEC statement, Yum China, which owns KFC, Taco Bell and Pizza Hut restaurants in China, said it may have to delist from the New York Stock Exchange by 2024.

The SEC's naming of the firms has added to pressure on already shaky Chinese equity markets, reeling from factors including economic concerns, the Ukraine conflict and the announcement this week by Norway's sovereign wealth fund that it was excluding Chinese sportswear maker Li Ning over human rights concerns.

Major Chinese companies and state media have mounted a concerted effort this week to reassure investors that the country's economic and market fundamentals are strong, as markets have dropped to more than 20-month lows.

The fresh worries on Friday even weighed on Hong Kong's currency amid heavy outflows from Hong Kong-listed shares, traders said. The Hong Kong dollar slipped nearly 0.1 per cent to 7.8296 per US dollar, its weakest since Dec 9, 2019.

China's yuan was also softer, trading at 6.3251 per dollar as rising risk aversion lifted the greenback.

Linus Yip, chief strategist at First Shanghai Group, said that although the SEC move was not totally unexpected, investors were interpreting it negatively given heightened geopolitical tensions.

"The atmosphere now is bad. We have Sino-US frictions, the Ukraine crisis, prospects of rate hikes and more," Yip said. "So it's natural for investors to look on the dark side."

However, he said oversold stocks that will be little affected by the SEC rules, such as Tencent, would provide buying opportunities.

Analysts at Citi said in a note that any real risk of delisting would not likely materialise until 2024 or 2025.

"We suggest buying big cap ADRs that already have dual-listing in HK." REUTERS