One might wonder why the Trump administration is threatening to delist Alibaba and Baidu. Is it to snub China, or is it to safeguard American investors? Have companies like Alibaba and Baidu acted against their stakeholders’ interests?
In my opinion, President Trump wants Chinese companies to live up to SEC requirements. After all, raising funds in the US should be based on adhering to all its laws.
The Trump administration is focusing on the Chinese companies listed on the US stock exchanges. Talk of delisting these Chinese companies has become a regular phenomenon of late. The administration is concerned about security threats, as Chinese companies do not adhere completely to the American disclosure norms of the Dodd-Frank Act.
This history dates back to 2013 when a memorandum of understanding (or MoU) was signed between the US and Chinese regulators. The MoU states that investigations and inspections for Chinese companies listed in the US would be restricted to the documents held with the audit firms. Records maintained by Chinese companies and kept in their offices do not fall under the purview of the covered audits.
From a completely different perspective, would an investor continue to trust a globally renowned company because it is now trading in OTC markets—and not on the Nasdaq or NYSE? Would companies like Alibaba Holdings (BABA), Baidu (BIDU), or JD.com even think of closing down and moving back to China due to the violation of US laws?
How did Alibaba stock react to the news?
Alibaba Holdings’ shares dropped on September 27 from a high of $176.32 to $165.91 by the end of the day. However, the stock opened on a positive note on September 30. It opened at $168.99 and rose to $169.73. Since then, the stock has seen little to no volatility.
Alibaba stock was trading around $168 with a standard deviation of $1. Toward the end of the trading day on Monday, the stock reached $167.62. Based on this trend, it doesn’t seem likely that the stock would drop lower than the previous closing price of $165.93.
The Chinese e-commerce company has traded on the NYSE since 2014. The company recently saw a change in leadership, when founder and chairman Jack Ma stepped down. Ma handed the reins of the company to Daniel Zhang, the current CEO of Alibaba.
Baidu is China’s Google. Baidu stock plunged on Friday after the morning session. Baidu stock took a $3.31 hit, from $106.15 to $102.84, within the span of five minutes. The stock receded in the afternoon session and finally closed at $101.21.
At the time, it seemed that the delisting news could become worse very soon. However, Baidu stock—like Alibaba—opened on Monday on a positive note. The stock rose to a high of $103.10 in the morning session.
Since then, there has been little movement, and the stock is currently trading at about $103 with a standard deviation of $0.50. At the end of the trading day, the stock closed at $107.26. During extended trading hours, BIDU rose to $103.42.
In my opinion, President Trump wants to uphold US regulations for the benefit of American investors. New Chinese IPOs could face harsh scrutiny by the administration.
Established global brands like Alibaba understand the importance of retaining and increasing the number of customers and investors. Any unethical acts and violations of the law could have a direct effect on the brand’s worldwide goodwill. I believe the relatively stable stock prices of BABA and BIDU today point to investor confidence in these companies.