As investors rethink their positions amid increasing delisting fears, shares of Chinese stocks listed in the United States are sliding Monday.
The Securities and Exchange Commission found five Chinese businesses’ American depositary receipts that failed to comply with the Holding Foreign Companies Accountable Act last week, causing several Chinese companies’ stocks to drop. ADRs are shares of non-US companies that are traded on US exchanges.
The provision permits the SEC to delist businesses and even prohibit them from trading on US exchanges if authorities are unable to evaluate their audits for three years in a row. Yum China, BeiGene, and Zai Lab all made the list after filing annual reports with the FDA lately.
In premarket trading, Monday, major stock names such as Alibaba, Baidu, and JD.com were all down 6%, 7%, and 7%, respectively. Alibaba dropped 12% last week, bringing its year-to-date loss to 27%, while Baidu dropped 14% last week, bringing its year-to-date loss to 20%.
In the midst of the sell-off, JPMorgan Chase analysts downgraded JD.com, Alibaba, and Pinduoduo to underweight.
“We believe a big number of foreign investors are reducing exposure to the China Internet sector as a result of mounting geopolitical and economic risks, resulting in major fund outflows from the industry,” analysts wrote. “We expect Alibaba will continue to encounter stock selling pressure in the short term as one of the most widely held equities in the China Internet sector.”
The Chinese stock market is down in general due to a new Covid-19 lockdown in Shenzhen, which is home to several of the country’s tech behemoths. In response, Foxconn, one of Apple’s largest suppliers, shut down operations. In pre-market trade on Monday, Apple’s stock was down roughly 2%.
After many news agencies, including the Financial Times, reported that US officials claimed Russia may have asked China for military assistance, some investors are starting to consider the ramifications of possible Chinese engagement in the Ukraine conflict.