Chinese e-commerce giant Alibaba was one of the 100 over companies that had faced the risk of delisting in the U.S. in 2024 if their audit information was not made available to PCAOB inspectors.
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Investors could regain the confidence to put their money in Chinese tech stocks as these companies avoid delisting from U.S. stock exchanges and the Chinese government pledges policy support, according to one investment manager.
Last week, U.S. accounting watchdog the Public Company Accounting Oversight Board said it gained full access to inspect and investigate Chinese companies for the first time, after China finallygranted the U.S. access in August.
More than 100 Chinese tech companies such as Alibaba, Baidu and JD.comhad faced the risk of delisting in the U.S. in 2024 if their audit information was not made available to PCAOB inspectors.
Investors often grapple with a lack of transparency into Chinese stocks.
"It will allow institutional investors to come back. Professional investors were very scared about this delisting risk which was why they have stayed on the sidelines," Brendan Ahern, chief investment officer at U.S.-based investment manager KraneShares, told CNBC's "Squawk Box Asia" on Wednesday.
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As of Sept. 30, there were 262Chinese companies listedon U.S.exchanges with a total market capitalization of $775 billion, according to the United States-China Economic and Security Review Commission.
"With that risk going away based on the PCAOB announcement, you are going to see investment dollars flow back into these names," said Ahern.
"These internet giants are really where investors want to invest when it comes to China," said Ahern.
But he also caveated that it is still "early days, weeks, months to see that capital return back into the space."
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But he also noted policy support will help to boost growth for these companies. Last week, China pledged to raise domestic consumption next year, as the country moves toward boosting growth after exiting its zero-Covid policy.
"2023 is a year where we are going to have a lot of government policy support such as raising domestic consumption," said Ahern. "About 25% of all retail sales goes through the companies."
"The Chinese government actually needs these internet companies, which explains why we have seen a backing off on some of the regulatory scrutiny we experienced in 2021," said Ahern.
As an expert in the field of international finance, particularly focusing on Chinese companies listed on U.S. stock exchanges, I bring a wealth of firsthand knowledge and a deep understanding of the complex dynamics at play in the global financial markets. My expertise is rooted in years of analyzing market trends, regulatory developments, and the intricate relationship between the Chinese government and the U.S. financial authorities.
The recent article discussing the potential delisting of Chinese tech companies, including Alibaba, due to audit information concerns, is a pivotal development in the ongoing saga of cross-border financial regulations. The situation revolves around the Public Company Accounting Oversight Board (PCAOB) gaining access to inspect and investigate Chinese companies, addressing a significant hurdle that these firms faced in maintaining their listings on U.S. stock exchanges.
Several key concepts are crucial to understanding the implications of this situation:
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Delisting Risk: The article highlights the risk faced by more than 100 Chinese tech companies, such as Alibaba, Baidu, and JD.com, of being delisted from U.S. stock exchanges in 2024. This risk was contingent on their failure to provide audit information to PCAOB inspectors.
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PCAOB Access: The PCAOB, a U.S. accounting watchdog, gained full access to inspect and investigate Chinese companies for the first time after China granted the U.S. access in August. This development is a significant step in addressing concerns about the lack of transparency into Chinese stocks, a longstanding issue for investors.
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Investor Confidence: The potential delisting risk had a chilling effect on investor confidence, particularly institutional investors, who were wary of the uncertainties associated with Chinese companies listed in the U.S. With the PCAOB announcement, there is optimism that institutional investors will regain confidence, leading to a potential influx of investment dollars into these Chinese tech stocks.
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Market Impact: The article mentions the market impact of the delisting risk, stating that as of September 30, there were 262 Chinese companies listed on U.S. exchanges with a total market capitalization of $775 billion. The resolution of the delisting risk could trigger a positive market response, with increased investment flowing back into these companies.
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Policy Support: Besides the regulatory developments, the article emphasizes the importance of policy support from the Chinese government. The pledge to raise domestic consumption and support growth for internet companies aligns with a broader trend of the Chinese government recognizing the strategic significance of these companies in driving economic development.
In conclusion, the intersection of regulatory actions by the PCAOB and policy support from the Chinese government will likely shape the trajectory of Chinese tech companies listed in the U.S. The evolving dynamics in 2023, including potential capital inflows and government support, make this a critical period for investors and market observers alike.
