Today has been a relatively exciting day in the world of stocks. For investors in Chinese stocks, perhaps too exciting.
A range of Chinese stocks are trading much lower today, following some key delisting news. Specifically, the U.S. Securities and Exchange Commission (SEC) has announced that Chinese social media giant Weibo (NASDAQ:WB) would be added to the list this week.
This news has sent shares in a number of U.S.-listed Chinese tech stocks much lower in today’s trading session. Worries around delisting risk had previously calmed down, following commentary from Chinese regulators that they would work with U.S. authorities to resolve this issue. This commentary had previously sent shares of most U.S.-listed Chinese stocks soaring over the past week.
However, investors in Chinese American depositary receipts (ADRs) are pricing in higher risk with these equities today. ADRs, by their nature, do not provide investors with direct ownership of Chinese companies. Rather, these are pieces of paper entitling investors to ownership of a company located in the Cayman Islands, or other nation, with little recourse if Chinese regulators change their mind on allowing ADRs to exist. Pressure from U.S. regulators to force Chinese companies to follow U.S. accounting standards has increased the risk that China may disallow ADRs altogether, which may result in a permanent or semi-permanent loss of capital for investors.
With this in mind, let’s dive into the six companies the SEC is targeting right now.
Which Chinese Stocks Could Get Delisted?
As mentioned, Weibo is the latest addition to the SEC’s list of companies at risk of delisting.
These companies are notable, as they are each sizable companies, in various sectors. Yum China, for example, manages the KFC banner within China. ACM Research is a leading tech firm, alongside Weibo. And BeiGene and ZaiLab are key players in the pharma and biotech space.
Thus, it’s clear that the SEC is taking a no-holds-barred approach to regulating foreign stocks. Right now, investors in anything tied to China are attempting to price in this delisting risk, which is a difficult task to be sure.
Where these stocks go from here remains to be seen. However, for now, it appears many investors are content sitting tight on the sidelines.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.