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Why 51job Stock Dropped 12% Today

By Rich Smith – May 22, 2020 at 4:56PM

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China stocks could be banned from U.S. stock markets -- and 51job is a Chinese stock.

What happened

Shares of Chinese job search site 51job (JOBS) closed trading down 12.1% on Friday. And you've got a problem with that, take it up with your senator.

There was no news today affecting 51job specifically. The last time the company reported earnings was some two months ago, and the company's next earnings report isn't due out for another month. No analysts downgraded 51job stock today, nor did anyone cut price targets on the stock.

No, it appears that the only reason 51job stock tumbled was that on Wednesday, the U.S. Senate passed a bill that could force Chinese stocks such as 51job to delist from U.S. stock exchanges.

Chinese flag superimposed on a stock market chart

Image source: Getty Images.

So what

Technically, of course, that's not what the bill says it aims to do. On the surface, all the Holding Foreign Companies Accountable Act requires is that foreign-owned companies -- not even Chinese companies in particular, necessarily -- be able to prove that they are neither owned nor controlled by a foreign government, and submit their financials for review by an American audit firm overseen by the U.S. Public Company Accounting Oversight Board.

Problem is, Chinese law doesn't permit that second requirement to happen, and unless China changes its laws, this new U.S. law, once passed, appears likely to result in the delisting of Chinese stocks like 51job.

Now what

Ordinarily, that wouldn't be an insurmountable problem. A "delisted" stock could still at least trade over the counter (OTC) in the U.S. -- albeit with less liquidity and probably at a depressed valuation. But the Senate bill in question, unless amended when voted on in the House, appears to forbid stocks that violate the bill's mandates from trading OTC, too. This could put 51jobs shareholders in something of a bind. Technically, they'd still own the stock -- but practically, they'd have no easy way to sell it after the law passes.

No wonder investors are selling today, before the law gets a chance to pass.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends 51job. The Motley Fool has a disclosure policy.

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