Popular Chinese tech stocks have plunged after the US regulator named five Chinese companies that could be removed from American stock markets for failing to meet audit requirements.
The names cited by the US Securities and Exchange Commission on Thursday are fast-food company Yum China Holdings (YUMC), tech firm ACM Research (ACMR), biotech group BeiGene (BGNE), Zai Lab (ZLAB), as well as pharmaceutical company Hutchmed.
But big tech stocks also fell because investors are concerned that more companies might be added to the US regulator’s list.
Alibaba (BABA) fell more than 5% Friday in Hong Kong. Its US-listed stock ended down 7.9% on Thursday.
Other companies with dual listings in the United States and Hong Kong also declined sharply.
The broad losses came as Chinese companies face intense regulatory pressure both at home and in the US. So far this week, the SEC has pointed out five Chinese companies for not adhering to the Holding Foreign Companies Accountability Act (HFCAA). That law gives the SEC power to kick companies off Wall Street if they fail to allow US watchdogs to inspect their financial audits for three straight years.
While it applies to any foreign company, the focus on China is obvious. Beijing has often resisted such scrutiny in the past. It requires companies that are traded overseas to hold their audit papers in mainland China, where they cannot be examined by foreign agencies.
The companies cited by the SEC on Thursday are the first among the roughly 270 Chinese firms that could be delisted from the New York Stock Exchange or the Nasdaq for not complying with the law. According to Citi analysts in a research report on Friday, there are “worries that more companies will be put on the [US] list in the coming months.”
On Friday, China Securities Regulatory Commission responded to the US move and said it was confident it will reach an agreement with US counterparts on securities supervision. Talks between the CSRC, the Chinese finance ministry and the US Public Company Accounting Oversight Board had made “positive progress,” the CSRC said in a statement.
The SEC’s move triggered a sell-off in Chinese stocks in the United States on Thursday.
The Nasdaq Golden Dragon China Index, a popular index that tracks more than 90 Chinese companies that are traded in the United States, fell 10% on Thursday, the worst daily drop since October 2008.
Yum China (YUMC), which owns KFC and Taco Bell brands in China, tumbled 11% on Wall Street. ACM Research (ACMR) plunged 22%. Zai Lab (ZLAB), Hutchmed, and BeiGene (BGNE) were down 9%, 6.5% and 6% respectively.
On Friday in Hong Kong, Yum China lost 6%, while BeiGene shed 5%.
The city’s benchmark Hang Seng (HSI) Index tumbled 1.6% on Friday, mainly on investor worries about a prolonged Ukraine war after peace talks between Ukraine and Russia staled. Japan’s Nikkei 225 (N225) fell 2.1%, and Korea’s Kospi was down 0.7%. But China’s Shanghai Composite reversed earlier losses and ended up 0.4%.
US stocks futures also moved lower, with Dow futures down 50 points, or 0.2%. S&P 500 and Nasdaq futures were down 0.1% and 0.2% respectively.