The SEC finalized the rules to implement the hfcaa filing and disclosure requirements
The SEC passed the amendment, On December 2, 2021, the U.S. Securities and Exchange Commission (SEC) passed an amendment to finally implement the foreign corporate liability act passed in December 2020 (hfcaa) and determined the implementation rules on submission and disclosure requirements. The measure further increased the risk of suspension and delisting of Chinese enterprises listed in the United States. After the news of Didi’s announcement of delisting from the New York Stock Exchange, investors were worried about the delisting trend of China concept shares, and the heavy loss of market confidence led to the sharp decline of China concept shares as a whole.
If it fails to comply with the requirements of the foreign corporate liability act for three consecutive years, The issuer will not be able to trade securities on U.S. exchanges (including over-the-counter markets). The foreign corporate responsibility act stipulates that if the audit institution employed by the securities issuer is in an area that cannot be regulated by the PCAOB, the company needs to prove that it is not controlled by the foreign government and hire an audit institution that meets the requirements of the PCAOB (the audit institution that can provide the financial audit draft). If zhonggai fails to provide the audit draft for three consecutive years, it will face the possibility of being forcibly prohibited from trading in the future.
HKEx revised the new regulations and continued to embrace the return of China concept shares
Embracing the return of Chinese concept stocks listed in the United States, the Hong Kong Stock Exchange issued new listing rules. On November 19, the Hong Kong Stock Exchange published the consultation summary on the reform of optimizing the listing system of overseas issuers. The Hong Kong Stock Exchange will implement the new regulations after minor modifications, and the new regulations will be implemented on January 1, 2022.
The revised opinions of the new version include further reducing the requirements for companies applying for secondary listing without WVR (same shares but different rights) structure in the original rules: ① reducing the market value from the original minimum expected market value of HK $10 billion to HK $3 billion; ② there is no need to meet the market value requirements for Chuang Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) Conditions of the company. For WVR or vie structure, the company can still retain its WVR and vie structure after applying for Dual Major listing.
HKEx also optimized the exemption period for companies delisted from overseas exchanges. If it is delisted in major overseas listed markets, the relevant companies will have a certain period of exemption, including the exemption from the application of financial reporting standards and the upper limit of related party transactions.
Which stocks are expected to return?
The new sec regulations and the system reform of the Hong Kong Stock Exchange will jointly accelerate the rhythm of the secondary listing of China concept shares in Hong Kong. The implementation of the new revision opinions of the Hong Kong Stock Exchange will greatly enhance the attractiveness of listing in Hong Kong, while the CSRC will increasingly strictly review the concept shares, and the concept shares may face the risk of being forced to suspend trading in the future. Therefore, the Hong Kong stock market will continue to benefit from the return of zhonggai shares. At present, 33 Chinese shares listed in the United States may meet the revised return conditions, with a total market value of about HK $1.47 trillion.
The valuation has reached an all-time low, and the negative impact is limited
We are optimistic about the future repair space of Hong Kong stocks in the short term. In terms of economy, boosted by the accelerated issuance of special bonds, infrastructure investment is expected to pick up and inject vitality into macroeconomic repair. In terms of valuation, the support of the 168 month moving average for Hong Kong stocks is of great significance in history. At present, the Hang Seng Index has basically touched the 168 month moving average, and the subsequent negative impact is limited. In terms of China US relations, in early December, China and the United States had a positive dialogue on tariffs. It is worth looking forward to the phased easing of China US relations in December.
In terms of industry configuration, it is suggested to pay attention to: 1) the intensive period of antitrust policy has passed, and the valuation of the Internet industry is expected to be repaired. 2) Machinery and construction industries benefiting from the expected warming of China’s infrastructure and marginal improvement in prosperity. 3) Focus on the pharmaceutical sector whose current valuation has been adjusted relatively fully and the anti epidemic concept stocks catalyzed by new strains.
Risk tips: 1. The United States tightened the regulatory policy for zhonggai shares; 2. Fluctuations in Sino US relations; 3. The delisting period of zhonggai shares was advanced.
