Alibaba plummets after SEC names 5 Chinese stocks for potential delisting

  • Alibaba plunged as much as 10% on Thursday after the SEC identified five potential Chinese stocks for possible delisting from U.S. exchanges.
  • One of the stocks identified by the SEC included Yum China, which fell 15%.
  • Companies identified by the SEC for possible delisting may respond with information to prevent delisting.

The U.S. Securities and Exchange Commission is watching Chinese stocks closely and investors are taking notice.

Popular Chinese stocks like Alibaba plunged as much as 10% on Thursday after the regulatory agency identified five Chinese companies at risk of delisting from US exchanges due to inadequate disclosures.

The five companies identified by the SEC were BeiGene, Yum China Holdings, Zai Lab Limited, ACM Research and HUTCHMED Limited. Shares of Yum China, which owns the franchise rights to KFC and Taco Bell in China, fell 15% following the SEC notice.

The SEC’s decision comes after the Holding Foreign Companies Accountable Act took effect on December 18, 2020. The law requires the SEC to identify foreign companies listed on US stock exchanges that will not allow a US auditor to fully inspect their financial books. This is the first time the SEC has identified companies since the law took effect.

The five companies identified by the SEC have until March 29 to submit evidence challenging the SEC’s identification under the HFCAA Act. The SEC finally has the power to delist Chinese stocks if, for three consecutive years, they do not allow a US accounting firm to audit its financial statements.

All of this translates into a growing divide between the United States and China, and it could cost investors billions of dollars. If a US-listed Chinese company does not allow a US-based accounting firm to audit its financial statements, it will violate the new law and be delisted.

This means that the shares will have to be relisted on a foreign exchange, which could cause a big headache for US investors who own the stock, as they may not have access to foreign markets. Although Alibaba and JD.com have not been identified by the SEC under the HFCAA law, that is not stopping investors from heading for the exit.

But an investor who might see value in this decline


volatility

is Warren Buffett’s right-hand man, Charlie Munger, as his Daily Journal Company acquired a major stake in the Chinese e-commerce giant.

The KraneShares CSI China Internet ETF fell 10% on Thursday, and is down more than 70% from its all-time high.

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