Commentary on Political Economy

Thursday 25 March 2021


U.S.-Listed Chinese Stocks Fall Into Bear Market

Technology-heavy gauge that includes Alibaba, and electric-car maker Nio tumbles 6.4%

The S&P/BNY Mellon China Select ADR Index includes electric-car maker Nio. PHOTO: QILAI SHEN/BLOOMBERG NEWS

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 Holding Ltd. and 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.

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