Chinese stocks are making headlines today. Today’s news that the U.S. Securities and Exchange Commission has adopted measures to delist certain Chinese stocks is big.
This comes in the wake of a series of U.S.-China talks in recent days. Let’s just say, these talks haven’t gone well.
As both countries form their hardline stances, it appears a wide swath of Chinese companies listed in the U.S. could be under pressure for some time. Accordingly, today’s selling in stocks like Nio (NYSE:NIO), Xpeng (NYSE:XPEV), Li Auto (NASDAQ:LI), Vipshop Holdings (NYSE:VIPS), iQiyi (NASDAQ:IQ) and Tencent Music Entertainment (NYSE:TME) isn’t unexpected.
Let’s dive more into what the SEC is up to, and what this means for investors.
Delisting Chinese Stocks: All About the SEC
On Wednesday, the SEC adopted measures prescribed by the Holding Foreign Companies Accountable Act. This bill was initially signed into law by former President Donald Trump last year. The aim of this piece of legislation is to delist Chinese companies if such companies fail to meet American auditing standards over a period of time.
The act would also require these companies to disclose governmental affiliations. Indeed, it appears the SEC has been hard at work providing a framework for how this act would be implemented within the prescribed 90-day window. The process for identifying companies that meet this standard is being reviewed, and public comments have been requested.
The Bottom Line
While nothing seems to be set in stone right now, this is worrying for investors in Chinese-based, U.S.-listed stocks. Accordingly, it appears that until trade tensions simmer down, this piece of legislation poses a real risk to specific companies.
It’s widely expected bipartisan support for a tough stance on China is likely to continue. Accordingly, investors appear to be taking today’s news seriously. But before panicking, make sure you read the news careful. Only companies that fail to comply with auditing standards are at risk.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
