A strict Chinese business market and a lack of transparency in U.S.-traded Chinese financials have resulted in hundreds of tickers facing delisting. However, some of these stocks are taking things into their own hands and applying for delisting before anyone gets the chance to give them the boot.
Five companies are ripping off the Band-Aid and applying for delisting. Here are the Chinese stocks that are leaving, plus which tickers could be next.
So far, five Chinese stocks have applied for delisting from U.S. exchanges.
The five Chinese stocks that are applying for delisting of their American depository receipts (ADRs) include:
Aluminium Corporation of China (ACH)
Sinopec Shanghai Petrochemical Co (SHI)
China Life Insurance (LFC)
All five of these companies are already on the SEC radar for potential delisting due to a lack of transparent financial audits. Since these firms all have relatively small market capitalizations, it isn't a huge loss for the U.S. capital markets at large. China Life Insurance has a $90.68 billion market cap as of Aug.12. Sinopec maintains a $68.47 billion market cap at the same time.
What’s causing the mass exodus of Chinese stocks?
The China-U.S. stock market dispute is much larger than these five companies. If the two nations can't come to an agreement on required financial audit data, it could spell the end for Chinese stocks on American exchanges at large.
Just look at the iShares MSCI China ETF (MCHI), an ETF that has lost nearly half of its value since February.
For China, the issue of fiscal transparency is a national security issue. For America, the lack of transparency means a lack of control and, ultimately, greater risk for investors. This risk can hit retail and institutional investors alike.
The China Securities Regulatory Commission (CSRC) says about the five stocks choosing to apply for delisting on their own volition, “These companies have strictly complied with the rules and regulatory requirements of the U.S. capital market since their listing in the U.S. and made the delisting choice for their own business considerations.”
The reality is that these companies likely have financial data that China wants to keep on the down low. The less America knows, the bigger a hand China has to work with in all kinds of geopolitical agendas. China doesn't work with the 2002 Sarbanes-Oxley Act in the U.S. (first instituted in the wake of the Enron Corp. scandal) and therefore operates in a gray area with U.S. regulators.
Will more Chinese stocks follow suit?
Even large, well-known Chinese companies like Alibaba Group Holdings (BABA), JD.com Inc. (JD), and Baidu Inc. (BIDU) could be at risk of exiting the U.S. markets.
Kai Zhan, senior counsel at Chinese law firm Yuanda, told reporters, “China is sending a message that its patience is wearing thin in the audit talks."
Investors, don’t be surprised to see more Chinese stocks follow suit and the U.S. market to adjust its international scope.