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Why Stock Was Falling Today

By Jeremy Bowman - Nov 30, 2020 at 1:53PM

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A push to step up regulations on Chinese stocks was pressuring the e-commerce company.

What happened

Shares of ( JD -3.81% ) were sliding alongside a number of Chinese stocks today as investors sold the sector on fears of an upcoming vote in the House of Representatives. Passage of the bill could lead to Chinese stocks being delisted from U.S. exchanges if they don't comply with certain rules.

As of 12:47 p.m. EDT, JD stock was down 4% on the news, while the iShares MSCI China ETF had given up 2.8% at the same time.

Chinese and American money stacked on top of each other.

Image source: Getty Images.

So what

JD, which is China's largest direct online retailer, has swung repeatedly on fears of a crackdown on U.S.-listed Chinese stocks. The company, which counts Walmart as a 5% shareholder and Google as a strategic partner, has become popular with U.S. investors.

This week, the House of Representative is expected to approve regulation that would require U.S.-listed Chinese companies like JD to agree to an annual audit to be reviewed by U.S. regulators as American companies must do. Chinese companies will have three years to comply with the audits, or they will be kicked off of U.S. exchanges.

JD appears to be preparing for such a threat, diversifying away from U.S. exchanges with an IPO in Hong Kong earlier this year and the IPO of its JD Health subsidiary in Hong Kong just last week.

Now what

It's unclear how JD would handle such regulation. China has pushed back against initiatives to audit its companies, citing the potential for state secrets to be revealed, and JD's IPO in Hong Kong seems designed to give American investors an option to transfer their stakes if Chinese companies are delisted. For individual shareholders, that option would depend on brokerage rules. Whatever happens, the issue is likely to weigh on JD and peers like Alibaba. Still, three years is a long time, and with a Biden administration set to take over, there's also the possibility of a thaw in U.S.-China relations.

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, Inc. Stock Quote, Inc.
$84.56 (-3.81%) $-3.35
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$140.23 (-1.68%) $-2.40
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$127.06 (-3.46%) $-4.55
iShares Trust - iShares MSCI China ETF Stock Quote
iShares Trust - iShares MSCI China ETF
$64.97 (-0.92%) $0.60

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

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