Chinese stocks saw a near across-the-board drop today and a number of major players are suffering brutal losses. Why? It appears the slump is due to a recent U.S. Securities and Exchange Commission (SEC) crackdown.
What’s going on with Chinese stocks today?
Well, the SEC just listed five U.S.-traded Chinese companies that have failed to follow the Holding Foreign Companies Accountable Act (HFCAA). The American depositary receipts (ADRs), which are securities for shares of non-U.S. companies, may be the first Chinese companies reprimanded for inability to adhere to HFCAA guidelines. Apparently, the five named companies have failed to follow auditing requirements. Under the act, the SEC could delist them as a result. KraneShares CIO Brendan Ahern commented the following on the situation:
“All the Chinese listed ADRs will likely end up on the list, because none of them will be able to comply with requests to have their audits reviewed […] Chinese law prohibits the auditor to provide their review to U.S. regulatory authorities.”
This SEC crackdown has elicited a Chinese stock selloff far and wide. So, which companies have been hit?
Chinese Stocks Suffer Major Losses Amid SEC Crackdown
According to Bloomberg, the Nasdaq Golden Dragon China Index has dropped more than 10% today, nearing its largest drop since 2008. This comes after a strong trading day for Chinese companies on Wednesday, in which the group saw its largest jump in “more than a month.”
A number of large-cap Chinese stocks have been hit by the recent downturn. Alibaba (NYSE:BABA) is down 8%, while Baidu (NASDAQ:BIDU) and Tencent (OTCMKTS:TCEHY) are each down by around 6% or more so far. This is actually on the tame side, comparatively. JD.com (NASDAQ:JD) and Pinduoduo (NASDAQ:PDD) have dropped over 16% today while Bilibili (NASDAQ:BILI) has dropped more than 13%. While the markets are down across the board today, Chinese stocks are getting hit particularly hard. Fears of regulatory oversight has clearly presented a bearish sign to many investors.
It’s unclear whether the HFCAA violations will grow legitimate thorns. But rest assured, investors will be keeping a close eye on Chinese companies going forward into the year.
On the date of publication, Shrey Dua did not hold (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.
