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Why Chinese Stocks Fell Today

By Evan Niu, CFA - Sep 27, 2019 at 3:41PM

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The Trump administration is reportedly looking to retaliate against U.S.-listed Chinese companies.

What happened

Shares of many U.S.-listed Chinese companies fell today on reports that President Trump is considering delisting the stocks from domestic exchanges. As of 3 p.m. EDT, Alibaba ( BABA -8.23% ) was down 6%, Huya ( HUYA -12.87% ) had fallen 12%, NIO ( NIO -11.19% ) had lost 13%, Tencent ( TCEHY -4.94% ) was down 3%, Baidu ( BIDU -7.77% ) sank 4%, and IQIYI ( IQ -15.74% ) had shed 6%, among other names.

So what

Bloomberg first reported that the Trump administration is weighing measures to limit U.S. investors' ability to invest in Chinese companies in an effort to reduce those companies' access to capital. That could even go as far as delisting the stocks from U.S. exchanges, although it's unclear how Trump would be able to pull off such a move.

Overlay of the U.S. flag, Chinese flag, and $100 bill

Image source: Getty Images.

Other alternatives reportedly under consideration include reducing exposure of government pension funds to Chinese companies, as well as setting limits on index inclusion, since most popular stock market indexes are constructed and operated by U.S. companies.

Now what

Many details around how such proposals would actually be implemented remain unclear, although lawmakers from both sides of the aisle have been advocating for greater oversight over Chinese companies that list their shares in the U.S. after various accounting scandals over the past decade. The Chinese government has long been averse to letting regulators from other countries examine local Chinese accounting firms, according to Reuters.

The proposed move would represent an unprecedented step in interfering in free markets, and hindering capital flows could potentially further escalate trade tensions between the world's two largest economies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Baidu, Inc. Stock Quote
Baidu, Inc.
BIDU
$137.39 (-7.77%) $-11.57
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$56.76 (-4.94%) $-2.95
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$111.96 (-8.23%) $-10.04
iQIYI, Inc. Stock Quote
iQIYI, Inc.
IQ
$4.71 (-15.74%) $0.88
HUYA Stock Quote
HUYA
HUYA
$6.43 (-12.87%) $0.95
NIO Inc. Stock Quote
NIO Inc.
NIO
$32.15 (-11.19%) $-4.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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