SHANGHAI/SINGAPORE (Reuters) - Investor concerns over the possible forced de-listing of Chinese companies from U.S. exchanges reemerged as the tit-for-tat trade war between the world’s two largest economies spread to the financial sector.
During the Biden administration, Chinese companies’ American Depositary Receipts (ADRs) faced significant delisting pressure due to audit disputes, causing their shares to tumble.
WHY IT’S IMPORTANT
More than 100 Chinese companies, including tech giants Alibaba (NYSE:BABA) and JD.com, are listed on U.S. exchanges and have a collective market cap of around $1 trillion.
Companies without a secondary listing, such as PDD which operates e-commerce platforms Pinduoduo (NASDAQ:PDD) and Temu, and Full Truck Alliance, China’s "Uber (NYSE:UBER) for trucks", would be the most vulnerable if a forced delisting happened.
Converting shares from the U.S. to Hong Kong stock exchange could drain liquidity and harm valuations. Companies may also face the risk of U.S. state funds divesting.
KEY QUOTES
"ADRs are the biggest hostage situation in financial history," said Fan Liwen, a portfolio manager at Shenzhen New Thinking Investment Management Co.
"If you must hold ADRs, you should switch to the Hong Kong Stock Exchange. Chinese companies listed as ADRs should push for listing in Hong Kong."
"Everything’s on the table," was Treasury Secretary Scott Bessent’s response when asked about removing Chinese stocks from U.S. exchanges in a TV interview last week.
"If Chinese ADRs wish to return, Hong Kong must become their first choice," said Hong Kong’s Finance Secretary Paul Chan, adding the security regulator and stock exchange had been told to prepare.
BY THE NUMBERS
The daily turnover for all ADRs included in the MSCI China Index is about $8.1 billion, roughly a quarter of the daily turnover of the Hong Kong market, according to Morgan Stanley.
Goldman Sachs estimates that U.S. institutional investors currently own about $830bn in Chinese stocks including ADRs.