U.S.-Listed Chinese Stocks Fall Into Bear Market
March 25 2021 - 6:39AM
Dow Jones News
By Joanne Chiu
Fresh concerns about companies from China being kicked off
American exchanges have helped push an index of U.S.-traded Chinese
stocks into bear-market territory.
The S&P/BNY Mellon China Select ADR Index tracks the
American depositary receipts for 48 major U.S.-listed Chinese
companies. The technology-heavy gauge includes e-commerce companies
Alibaba Group HoldingLtd. and JD.com Inc., and electric-car maker
Nio Inc.
The benchmark tumbled 6.4% Wednesday, leaving it 23% below a
record hit on Feb. 16. A bear market is usually defined as a drop
of at least 20% from a recent peak.
Chinese tech stocks are partly struggling because of the threat
of delisting, as well as heightened regulatory risk at home, said
Wei Wei Chua, a portfolio manager at Mirae Asset Global Investments
in Hong Kong. In addition, investors are rotating into more
economically sensitive sectors, and higher bond yields have put
pressure on the valuations of fast-growing companies. "It's a
perfect storm" of negative news, Mr. Chua said.
The Securities and Exchange Commission said Wednesday that it
has started to implement a law requiring accounting firms to let
U.S. regulators review the financial audits of overseas companies.
The law was passed at the end of the Trump administration. It could
in time lead to foreign companies that don't comply being delisted
from the New York Stock Exchange or the Nasdaq Stock Market, and
will mainly affect businesses from China.
Mr. Chua said eventual forced selling by U.S. investors could
hit share prices. Still, he said several of the companies had
secondary listings in Hong Kong, limiting the practical effect on
those groups.
Paul Sandhu, head of multiasset quant solutions for the
Asia-Pacific region at BNP Paribas Asset Management, said the SEC
move showed that the Biden administration was turning its attention
to China. Still, he said the development wasn't too negative. "As
investors, we want to have more transparency and more knowledge"
about the companies being invested in, he said.
In one example of the pressure Chinese tech groups are also
facing at home, China's antitrust regulators are considering
levying a record fine against Alibaba, The Wall Street Journal
reported earlier this month.
In addition, Mr. Sandhu said a sharp run-up in Chinese tech had
left it ripe for a repricing. "Chinese tech stocks have experienced
momentous growth. They've had a lot of gains," he said.
Many investors have recently sold down some holdings to
rebalance their portfolios. That meant buying stocks that traded on
low valuation multiples, or that were more exposed to economic
cycles, Mr. Sandhu said, or simply accumulating cash to buy back in
at lower levels.
Some other gauges tied to Chinese tech have also tumbled. Hong
Kong's Hang Seng Tech Index has dropped 27% from a peak in
February. The 30-stock benchmark includes Tencent Holdings Ltd.,
Alibaba, and smartphone maker Xiaomi Corp. In Shenzhen, the
tech-heavy ChiNext Index has fallen 22% from a recent high-water
mark.
Write to Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
March 25, 2021 06:24 ET (10:24 GMT)
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