China Stocks With US Listings Slump as NYSE Exit Gathers Pace

  • China’s state-owned firms among biggest decliners in Hong Kong
  • Analysts expect negative sentiment impact, but no material hit

China’s state-owned enterprises that plan to delist from US stock exchanges slid on Monday, as investors expected more firms to follow suit amid an auditing spat between the two nations.

PetroChina Co. dropped as much as 4.3% in Hong Kong, while China Life Insurance Co. and China Petroleum & Chemical Corp. lost more than 2% each. Sinopec Shanghai Petrochemical Co Ltd. and Aluminum Corp of China Ltd. also fell. The moves follow a drop in their American Depositary Receipts on Friday.

Friday statements from the five firms were seen as reflecting rising US-China tension and a lack of progress in reaching agreement over giving American regulators better access to Chinese firms’ financial data. While some analysts expected the move to have limited share-price impact given the stocks’ modest US trading volume, market reaction suggests traders remain wary of the added uncertainty at a time when the economy is slowing.

A bear case scenario would be the two sides failing to reach a deal soon and leading to “mega-cap Internet companies applying for delisting,” said Redmond Wong, strategist at Saxo Capital Markets. That risk “is increasing and that will unsettle the market.”

Closer to Home

Some of China’s largest state-owned stocks are much more liquid at home

Hong Kong’s benchmark Hang Seng Index fell as much as 1% before paring its loss to 0.2% as of 1:09 p.m. China’s CSI 300 index was little changed after earlier losing 0.4%.

“We expect market sentiment might be dampened, as more inactively traded ADSs of Chinese SOEs may follow the delisting,” Citigroup Inc. analysts including Michelle Ma wrote in note. Still, they said negative impact should be “immaterial” as only a small portion of the securities are traded in the US, they said in a report commenting on China Life.

Jefferies Financial Group Inc. analysts saw this “voluntary delisting” as a sign that China has started a screening process to decide which companies they don’t want to be subject to US audit investigations.

“This is likely a sign that China’s ‘selection process’ has started, instead of a sign that there is no deal,” analysts including Edison Lee wrote in note. “We believe China is setting up a mechanism for it to screen out those companies that they do not want US-listed. Those that pass the test will then be allowed to comply with the SEC audit investigation requirements.”

The Chinese securities watchdog has denied a media report that they plan to group companies into three categories to avoid delisting. On Friday, it said the companies’ delistings are based on their own business decisions.

Author: Jeanny Yu, Bloomberg

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