On March 16, US stocks closed, and China concept stocks, which had been cloudy for many days, finally ushered in a clear sky. Nearly 160 Chinese concept stocks listed in the United States rose by more than 10%, and the NASDAQ China Jinlong index, which tracks the performance of 93 major Chinese concept stocks, rose by an amazing 33.38%, including Zhihu rose by more than 80%, Jinshan cloud rose by more than 72%, Betta rose by more than 60%, pinduoduo rose by more than 56%, iqiyi rose by more than 50%, BiliBili rose by more than 47%, JD and Baidu rose by nearly 40%, and Alibaba rose by more than 36%. On the 17th, many Chinese concept stocks returned to Hong Kong also continued the strong situation of the previous trading day and closed up sharply.
The reason for the rebound of China concept stocks in the resumption of trading, Yue Pingjun believes that the change of the market’s attitude towards China concept stocks overnight stems from the decline of policy uncertainty.
where is the stock ownership crisis in this round? What factors led to the “irrational” decline of the market? China and the United States are now working together. Does the warming of policies mean that China concept shares are about to usher in spring? Yuepingjun brings you analysis
“storm” why come in advance
“This round of China concept stocks plummeted as expected and unexpected. The downward trend of China concept stocks affected by the foreign company Accountability Act is not two days a day, but I didn’t expect the stampede to come two years in advance.” A senior US stock investor told Yue Pingjun.
The turning point came in May 2020, when the US Senate passed the foreign company Accountability Act. The bill will implement a series of regulatory measures for foreign companies listed in the United States. The main contents include that from the annual report of 2021, if they fail to meet the inspection requirements of the U.S. public company accounting oversight board (PCAOB) for accounting firms for three consecutive years, they will face a ban on trading, that is, compulsory delisting.
this means that 2024 will be a key year for China concept stocks to stay or leave in the United States yuepingjun found that from 2020 to 2021, many Chinese stock companies such as Netease, jd.com, Baidu, autohome and BiliBili have chosen to be listed in Hong Kong for the second time.
but it was on March 8 that the process was suddenly stimulated two years earlier on the same day, the securities and Exchange Commission (SEC) included five Chinese ADRs (American Depositary Receipts) of Baiji Shenzhou, yum China, zaiding pharmaceutical, shengmei semiconductor and Hehuang pharmaceutical into the “temporary delisting list”. Adding the “temporary delisting list” means that they will enter the formal delisting list in 15 working days.
Under the guidance of risk aversion market sentiment, the general shares in the United States and China plummeted on March 10. Jingdong, pinduoduo, iqiyi, bilibilibili, Netease and other stocks fell by more than 10%. The panic continued for many days and spread to the Hong Kong stock market. Hong Kong’s Hang Seng technology index suffered heavy losses for days.
According to Yue Pingjun’s retrospect of this time, it can be found that the dispute between China and the United States over the supervision of audit institutions and the exit of manuscripts is the key reason for the uncertainty of zhonggai shares.
In short, it is required in the foreign company accountability act that foreign auditors need to obtain the contents of the audit working paper of zhonggai company through “cross-border audit”, which does not meet the current regulatory requirements of China.
as early as the passage of the bill in the United States, the head of the relevant department of the CSRC once said: “some provisions of the bill are directly aimed at China, rather than based on professional considerations of securities regulation. We firmly oppose this practice of politicizing securities regulation.” since then, the CSRC has repeatedly stressed that the essence of Chinese laws and regulations is that information exchange such as audit working papers should be conducted through regulatory cooperation channels, which is a common practice in line with international practice.
Therefore, the cross-border supervision of Chinese companies going to sea has become the “sword of Damocles” hanging on the head of Chinese stocks listed in the United States.
economic fundamentals have not changed
However, the market view is that the market fluctuations encountered by the Chinese concept stock group in this round are more caused by irrational market sentiment, and the underlying Chinese economic fundamentals are not the cause of market fluctuations.
In view of all kinds of doubts and speculation in the market, the signal about China concept shares released at the special meeting of the financial stability and Development Commission of the State Council on March 16 brought a “booster” to market confidence in an important time window.
in the view of Yue Pingjun, the stable and good situation of China’s economic situation this year has not changed , and foreign investors will not sell Chinese assets on a large scale because of changes in fundamentals.
Since the beginning of the year, despite the rise of covid-19 epidemic and the slowdown of global economic recovery, the recovery momentum of China’s economy has far exceeded market expectations, showing the trend of “seeking progress while maintaining stability”. The growth of fixed asset investment accelerated to double digits, which exceeded the market expectations. In particular, the data from January to February showed that the investment in manufacturing increased by 20.9%, indicating that the investment confidence of enterprises has increased significantly, and the growth of infrastructure investment has also accelerated to 8.1%, indicating that the government’s financial investment is also increasing.
When yuepingjun turned his attention to the other side of the ocean, on March 10, the CPI in February announced by the United States rose sharply to 7.9% (it had remained at a high level of more than 7% in the previous two months), the highest increase since 1982. On March 16, the Federal Reserve announced an interest rate hike, raising the target range of the federal funds rate by 25 basis points to between 0.25% and 0.5%.
at a time of high inflation in Europe and the United States and international geopolitical turmoil, China strives to strive for a GDP growth rate of about 5.5% this year and become the “sea god needle” of the global economy
According to Zhang Bingwen, a senior researcher at Zhixin Investment Research Institute, the Fed’s interest rate increase policy not only curbs inflation, but also adds more uncertainty to the process of U.S. economic recovery, resulting in pressure on economic growth. In contrast, China’s proactive fiscal policy and loose monetary policy are aimed at consolidating economic fundamentals and promoting sustained and steady economic growth.
Under the background that China’s “national economic recovery is better than expected”, Tang Jianwei, chief researcher of Bank Of Communications Co.Ltd(601328) Financial Research Center, analyzed that the concept stocks have fluctuated sharply in recent times. On the one hand, the conflict between Russia and Ukraine has led to an increase in risk aversion, on the other hand, the delisting risk of China’s concept stocks has caused market panic. This meeting of the financial committee will play a significant role in stabilizing and boosting the confidence of the market and micro entities.
The economy has a sound start and still pursues “seeking progress while maintaining stability”. What the market needs more is confidence more important than gold. Therefore, after taking the “policy reassurance”, the market immediately improved.
Market confidence remains to be further strengthened. “Previously, there were successive irrational declines in China concept stocks and Hong Kong stock technology stocks. With the stability of market sentiment, the bottom reading funds also returned on a large scale, forming a spectacle that the Hong Kong stock technology index soared by 20%.
” China Everbright Bank Company Limited Co.Ltd(601818) financial market analyst Zhou Maohua made such analysis. He told yuepingjun that zhonggai shares have sound fundamentals, optimistic profit prospects, and low overall valuation. The recent sharp fluctuations in the stock market obviously deviate from the fundamentals and policies. With the market sentiment calming down, the short-term downward space is very limited, which is also the general understanding reached by the market at present
the two countries need to work together to overcome the crisis
However, the resolution of the China concept stock crisis is bound to be inseparable from China and the United States adhering to the spirit of openness and cooperation and properly dealing with the differences in supervision. At present, the market has formed a consensus – “concerted efforts to reach ten thousand gold”.
financial committee pointed out at the special meeting that the regulatory authorities of China and the United States have maintained good communication and made positive progress on China concept shares, and are working to form a specific cooperation plan. The Chinese government continues to support all kinds of enterprises to list abroad
According to Xu Fei, assistant director and chief strategic analyst of Wanlian Securities Research Institute, we continue to support all kinds of enterprises to list abroad, clearly express the attitude of supporting the development of Chinese science and technology enterprises and overseas financing of enterprises, and reflect the intention of protecting the development of enterprises.
the market still believes that the key to the trend of zhonggai shares lies in “confidence”
Fu Min, an analyst at AVIC securities, believes that the logic of the role of policy in the equity market lies in the recasting of investor confidence. Tang Jianwei said, “the corresponding market risk is gradually decreasing, and zhonggai shares are expected to resume stable operation in the future.”
On the other side of the ocean, on March 15, the U.S. public company accounting oversight board (PCAOB) also said that the committee is maintaining active communication with Chinese regulators and has held talks for many times recently. The two sides are committed to reaching a cooperation agreement so that it can inspect Chinese and some Hong Kong audit firms engaged in mainland business registered in the United States. PCAOB expressed its willingness to maintain cooperative relations with Chinese government departments and carry out inspection and investigation of relevant accounting firms in a similar way with dozens of other countries or regions.
The system also provides support for the return of confidence. In December 2021, the CSRC, together with the relevant departments of the State Council, drafted the draft provisions on the filing management of overseas issuance and listing of domestic enterprises, and has completed public consultation. The draft creatively regulates the filing of overseas listing, which clearly supports the standardized development of enterprises that meet the policies and conditions by using the overseas capital market, It has also reserved institutional space for the listing of China concept shares in the United States.
in the view of yuepingjun, China’s capital market reform is constantly moving towards a more transparent, open, perfect and inclusive direction. The marketization and internationalization of China’s capital market will be further improved, and the institutional two-way opening of the capital market will not change
Yue Pingjun believes that the regulators of China and the United States have rich experience and foundation in cross-border regulatory cooperation. In the future, the regulators of the two countries will have enough wisdom and patience to jointly solve the current problems faced by zhonggai shares.
