What happened

Tencent Music Entertainment Group (TME 1.77%) is down 6.1% at 3 p.m. ET.

What's the deal with Tencent Music today? Yesterday Tencent conducted what it described as an "introduction" of its stock to the Stock Exchange of Hong Kong (SEHK), listing its Class A common stock on the Main Board, where it will be tradable in 100-share lots. At the same time, Tencent Music confirmed that its listing on the New York Stock Exchange (NYSE), where one American depositary share represents two shares of Tencent Music common stock, also remains active.  

So what

Why might a listing in Hong Kong have sparked a sell-off in New York, though?

The most logical answer is that investors who own shares on the NYSE are selling those shares and rebuying shares on the SEHK now that that is an option. They would do this with the theory that, by moving their stakes to Hong Kong, they can limit the risk of their shares being delisted from the NYSE due to an ongoing dispute between Chinese regulators and the U.S. Public Company Accountability Oversight Board (PCAOB).

Now what

Ever since Congress passed the Holding Foreign Companies Accountable Act (HFCAA) in 2020, this has been a concern for investors who own Chinese stocks -- the risk that, unless China and the Securities and Exchange Commission could come to an understanding, the latter might require Chinese companies to delist from U.S. stock exchanges over concerns about their lack of financial transparency. And granted, these concerns were allayed somewhat when Beijing and Washington struck a compromise last month to permit the PCAOB to inspect the work of Chinese auditors "on-site" in Hong Kong. But details on that compromise are still being worked out, and investors today seem to be expressing a lack of confidence in the deal.  

When you consider that, despite losing 38% of its value over the past year, Tencent Music stock at a 19 P/E still doesn't sell for that big of a discount to the average S&P 500 stock, limiting the delisting risk by exchanging U.S. listed Tencent Music shares for safer, SEHK-listed shares seems prudent to me.