US-listed Chinese stocks are headed for trouble

By my count, there are 242 China-headquartered companies that are NYSE or Nasdaq listed and raising capital in the US. Companies from all other countries comply with the full disclosure requirements including releasing their audit papers to the US Public Company Accounting Oversight Board, but that is not being done by China-headquartered companies. China law prohibits it. Yet these companies continue to be US-listed and the SEC is preparing to act.

As published by Bloomberg:

Under a law signed by Trump in December 2020, a company would be delisted only after three consecutive years of non-compliance with audit inspections, and it could return by certifying that it had retained a registered public accounting firm approved by the SEC. The three-year clock wouldn’t start ticking until the SEC drafts rules for how the law will be carried out. The SEC kick-started that practice with a March 24 announcement seeking public comment on the type of disclosures and documentation that firms will have to share.

The SEC started working on this matter early this year and shortly after that, the Chinese stocks took a substantial hit. The fuse has been lit and I believe that sometime this year, the SEC is likely to publish definitive regulations. At that point, I believe the second hit to Chinese stocks will be much greater.

Investors need to price this risk into the China-headquartered stocks they hold.

Here is a list of 19 high-quality stocks that would be impacted.

https://finviz.com/screener.ashx?v=141&t=BABA,BEKE,BIDU,BILI,CAN,DIDI,EDU,GDS,JD,JOBS,LFC,LU,NIO,NTES,PDD,QFIN,XPEV,YUMC,ZTO&o=perf13w


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