Shares of China SXT Pharmaceuticals (NASDAQ:SXTC) stock are up over 70% today on seemingly no company-specific news. China SXT operates as a traditional Chinese medicine pieces (TCMP) manufacturer.
According to Reuters, this company sells its TCMP under three brands in China: Hui Chun Tang, Suxuangtang and Tong Ren Tang. Furthermore, the pharmaceutical company sells most of its products “on a prescription basis across China.”
So, why exactly are shares of SXTC stock up today? Here’s what investors should know.
Why Is SXTC Stock Up Today?
There’s seemingly no company-specific news concerning China SXT today. However, SXTC stock’s trading volume is climbing. At the time of writing, SXTC stock has a volume of roughly 170 million shares, which is more than 25 times the average daily volume of 6.6 million shares. In addition, message volume for the stock ticker on Stocktwits is up over 190% currently.
Is a short squeeze possibly in play? According to MarketBeat, China SXT has a short interest as a percentage of float of 1.9%. Based on this low figure, it doesn’t seem like SXTC stock is experiencing a short squeeze.
Still, while the penny stock is up big today, the company is also down more than 45% year-to-date (YTD). That’s likely due in part to U.S.-China tensions. However, a positive development between the two countries may be factoring into today’s price action.
China SXT Pharmaceuticals: China Works with U.S. to Solve Audit Issues
The audit issues between the U.S. and China have raged on for several months now. China has been known for banning the “foreign inspection of working papers from local accounting firms.” However, that practice is directly in violation of the United States’ Holding Foreign Companies Accountable Act (HFCAA).
The HFCAA, which was signed into law in December 2020, states that U.S. regulatory agencies must audit Chinese audited forms for China-based companies trading on U.S. exchanges. If regulators can’t audit forms for three consecutive years, violating companies risk being delisted.
Now, it appears that China wants to cooperate with the HFCAA. An anonymous source “close with Chinese regulators” stated the following:
“Both Chinese and U.S. regulators are fully aware of each other’s concerns, and are moving toward each other, and working hard to find solutions to the issue in order to achieve effective and sustainable cooperation as soon as possible.”
This month, Bloomberg also reported that China’s securities watchdog is mulling over a proposal that would allow U.S. auditors to look at filings for some companies. That could occur as early as this year. Nevertheless, investors in Chinese stocks will want to keep their eyes peeled for any further updates.
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On the date of publication, Eddie Pan 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.
