Muddy Waters’ Carson Block expects many Chinese ADRs to be delisted

On Jul 16, 2021 42

Carson Block, founder of Muddy Waters Research, said Thursday that he expects a wave of delistings for Chinese ADRs, citing a lack of financial transparency and rising tensions between China and the U.S.
Speaking to CNBC, the well-known short-seller said China has responded to a step-up in U.S. rhetoric against the country with its own escalation, leading to situations like the regulatory crackdown against DiDi (NYSE:DIDI) shortly after its IPO.
Block interprets these moves as a way for the Chinese government to communicate to companies based in the country that a potential wave of ADR delistings is coming.

Despite his view of the sector, Block admitted that historically short-sellers have had a difficult time making money off of Chinese stocks.
“China stocks have been very hard on the sell side,” he said.
To explain this, Block accused Chinese companies of stock manipulation and using unreliable financial information.
He called for the U.S. to use “NSA-level computer scientists” to look at movement in Chinese ADRs, looking for signs of manipulation.
Block’s perspective on Chinese stocks is an extreme version of a rising feeling in the market that the opaque regulatory and financial structures in China increase the risks related to these investments. For more on this view, check out what Cathie Wood had to say as she cut her Chinese holdings earlier this week.