Shares of several Chinese fintech companies took a hit Thursday following recent news that the Chinese government plans to intensify its supervision of Chinese companies that trade on U.S. stock exchanges.
Shares of the consumer finance company LexinFintech Holdings Ltd-ADR (NASDAQ:LX) fell 12.7%, while shares of the personal financial services platform Lufax Holding Ltd-ADR (NYSE:LU) fell more than 16%. Additionally, shares of 360 DigiTech Inc (NASDAQ:QFIN), a digital platform that helps other financial institutions connect with customers, fell nearly 21.5%.
When Chinese companies list on U.S. stock exchanges like the New York Stock Exchange, American investors can purchase shares in them through American depositary receipts (ADR). This year, a lot of Chinese companies have been volatile and seen shares soar higher at times, making them increasingly popular among U.S. investors. In particular, Chinese fintech companies are attractive because of the huge opportunity presented by China's population and economy.
But recently, CNBC reported that China's State Council plans to change the rules of "the overseas listing system for domestic enterprises," which could prove detrimental to future Chinese initial public offerings and current ADR listings.
"U.S. investors will have to weigh the risks of owning ADRs at a time when tensions between Beijing and Washington remain elevated while all global investors will have to balance the allure of China's vast addressable market with the possibility that officials may reshape company prospects at the stroke of a pen via the imposition of regulatory strictures," Peter Berezin of BCA Research wrote in a note.
The ride-hailing app DiDi Global Inc-ADR (NYSE:DIDI) got a taste of this when it went public on June 30, raising $4.4 billion, only to see its shares drop 20% Tuesday after Chinese authorities announced that due to cybersecurity risks, they would remove the app from app stores in China. Hedge fund manager Kyle Bass on CNN used a veiled expletive in describing the move, which he saw as directed squarely at the United States.
Shares of 360 DigiTech also seem to be falling after Seeking Alpha reported that people on Chinese social media are saying the company's 360 IOU app, one of the company's core products, had been removed from app stores.