What happened
Shares of many Chinese stocks listed on U.S. exchanges blasted higher today, as the Chinese government expressed plans to ease up on Chinese tech stocks and support foreign listings. Hong Kong's Hang Seng index jumped 9% in its best day of trading since 2008.
The news also comes shortly after U.S. and Chinese officials held talks regarding Russia's ongoing invasion of Ukraine.
Shares of the large Chinese real estate platform KE Holdings (BEKE -1.01%) had exploded more than 57% higher as of 1:47 p.m. ET today. Shares of the Hong Kong-based online wealth management and brokerage company Futu Holdings (FUTU 0.96%) traded 36% higher, while shares of online broker Up Fintech Holding (TIGR -0.32%) had risen more than 28%.
So what
Last week, the U.S. Securities and Exchange Commission (SEC) named five companies that were dangerously close to being delisted from U.S. exchanges because they had not hired auditors that U.S. regulators deemed to be suitable, which means they could not be audited. Passed into law in 2020, The Holding Foreign Companies Accountable Act prohibits companies from listing on U.S. exchanges if they can't have their financials reviewed by regulators for three years in a row. That news has prompted a brutal sell-off of most Chinese stocks listed on American exchanges.
However, state media in China reported earlier today that U.S. and Chinese regulators were closing in on an agreement that would improve the situation, although not a lot of specifics seemed to be provided.
Image source: Getty Images.
"We believe that through joint effort both sides will, as soon as possible, be able to make arrangements for cooperation in line with the two countries' legal and regulatory requirements," Chinese regulators said, according to CNBC.
Chinese financial regulators have long talked about opening up the country to foreign investment but have also taken a stricter approach to the tech and real estate sectors over the last few years. They have cracked down on property developers relying on too much debt and have also not been happy with tech companies that they believe are too anti-competitive.
Just take a look at what has happened to China's top ride-hailing company, Didi Global (DIDI 0.43%), which went public last June. A few days after it went public, Chinese regulators eliminated Didi from all of its app stores on concerns regarding cybersecurity and privacy. Then regulators implemented new policies that forced ride-sharing companies in the country to cut commissions and hike wages and benefits for drivers, which could hurt Didi's bottom line significantly. Didi has also previously talked about delisting from the New York Stock Exchange, although that plan is now uncertain. Since its initial public offering, shares of Didi, which are up 44% today, are still down 83%.
"China's top leaders finally broke the silence to respond to the recent market sell-off," Macquarie Group's chief China economist wrote in a research report. He added: "The tone of the meeting is strong, suggesting that policymakers are deeply concerned about the recent market rout."
Now what
Chinese stocks have never really been my cup of tea because, as you can see, the regulatory landscape can be so hard to predict, so unexpected, and can move the stock price and impact business performance so excessively.
But this is definitely good news if you are following and investing in the sector. Instead of taking a more confrontational stance to U.S. regulators potentially delisting Chinese stocks, Chinese regulators seem to want to continue to play a big role in the global economy, which bodes well for the sector.
