Emmanuel Wong | News Getty Images | Getty Images BEIJING — The risk of Chinese stocks being delisted from U.S. exchanges has nearly halved after regulators reached a control deal, Goldman Sachs analysts said in a report on Monday. The U.S. Securities and Exchange Commission and the U.S. Accounting Oversight Board announced on Friday that both sides have signed a cooperation agreement to review audit working papers of U.S.-listed Chinese companies. China’s Ministry of Finance also signed the agreement. “This is undoubtedly a regulatory breakthrough,” said Kinger Lau and a team at Goldman Sachs, while cautioning that much uncertainty remains. They pointed out that the PCAOB said the agreement was only a first step, while the Chinese side said it would provide “assistance” in inspections. The PCAOB said it plans to have inspectors in China by mid-September and decide in December whether China continues to block access to audit information. Goldman Sachs analysts said on Monday their model “indicates that the market may be pricing in about a 50% probability” that Chinese companies could be delisted from the US. That’s down from 95% in mid-March – the highest on record dating back to January 2020. In late 2020, the US Foreign Corporation Accountability Act became law. It allows the U.S. Securities and Exchange Commission to delist Chinese companies from U.S. exchanges if U.S. regulators cannot review the companies’ audits for three consecutive years. Since March, the SEC has begun charging Alibaba and certain other Chinese stocks listed on the U.S. exchange for failing to comply with the new law.
Outlook for Chinese stocks
If U.S.-listed Chinese stocks, known as American Depositary Receipts, are forced to delist, shares could drop 13 percent, Goldman Sachs analysts estimate. MSCI China could fall 6 percent in such a scenario, the report said. The index’s top holdings are Chinese stocks listed mainly in Hong Kong, such as Tencent and Alibaba. A “no delisting” scenario could send ADR and MSCI China 11% and 5% higher, respectively, the report said.
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Few China-based companies have gone public in the US after Beijing’s scrutiny of Chinese ride-hailing company Didi’s IPO in late June 2021. Since then, regulators have tightened restrictions on Chinese companies – especially those with at least 1 million users – which they want to import abroad.
