Chinese stocks listed in the United States experienced their worst trading day since 2008, driven by fears of a potential delisting from US markets under a law requiring companies to provide audit evidence to US regulators. The Chinese markets reverberated on Friday, where many stocks experienced significant price drops.
The Securities and Exchange Commission this week named five Chinese companies that could be floated under a Trump-era law that aims to investigate companies with possible ties to foreign governments or the Chinese Communist Party. The companies have three years to comply and transfer the information.
Among the companies identified in the The SEC listing released included Yum China Holdings, the fast food chain that runs KFC and Taco Bell in China, and drug developer BeiGene.
Following the announcement, the Nasdaq Golden Dragon China Index, which tracks Chinese companies traded on Wall Street, fell more than 10 percent.
The decline continued on Friday in Asian markets.
Hong Kong-listed technology stocks led the slump, with the Hang Seng Tech Index falling 4.28 percent at market close. JD.com and Alibaba also saw significant losses, at 15.8 percent and 7.9 percent respectively.
“The clock is ticking and some investors have lost patience and are leaving this space in the face of uncertainty,” said Bruce Pang, a Hong Kong-based analyst with China Renaissance Securities. He said the threat of delisting is heightening general investor concerns about the wider geopolitical ramifications of the war in Ukraine and US-China relations.
US lawmakers said in passing the Holding Foreign Companies Accountable Act in 2020 that the new regulations would increase transparency and protect investors from fraud. Chinese regulators this week said they were working with their US counterparts and making progress, but they have also complained that the US politicized capital markets regulation and discriminated against Chinese companies.
Chinese law restricts the transfer of certain company financial information out of the country, making it more difficult for companies to comply with US law.
