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US-listed Chinese equities climb on stimulus and easing lockdown

Written by Nikkei Asia Published on   3 mins read

China tech stocks stage broader rally as investor optimism grows.

A week after a vote on the most prominent delisting yet of a Chinese company on an American exchange, shares in China’s tech sector continue to rally as investors appear to be bullish on Chinese equities following months of uncertainty over regulation and COVID-19 lockdowns.

The Nasdaq Golden Dragon China Index, which tracks Chinese companies traded on US exchanges, closed up 4% on Tuesday and 16% higher from a week earlier.

Meanwhile, the Hang Sang Tech Index in Hong Kong, which includes major Chinese internet platforms, closed up 3% from the previous close and 11% higher from the week before.

Shares in Chinese exchange-traded funds have also been rising. The three largest Chinese ETFs saw shares rise with MSCI up 3%, KWEB up nearly 5%, and FXI up 3%. All three climbed more than 8% from the week before, with KWEB shares up 17% on the week.

“People are starting to position like we feel a little more optimism now,” said Anthony Sassine, senior investment strategist with KraneShares, the investment manager for KWEB.

“It’s not complete yet, people are still cautious. But we’re definitely seeing a lot better price action, and flows, and conversations,” he said.

Last week, China’s State Council announced a stimulus package to boost the sluggish economy, which has been hampered by a COVID-19 wave triggering strict lockdowns throughout the country, most notably in its largest city, Shanghai.

Three of the largest Chinese companies trading in the US—Alibaba, NetEase, and Baidu—posted better-than-expected earnings figures last week as recovery from the COVID-19 wave was stronger than anticipated.

However, despite exceeding its revenue forecast, Alibaba and fellow Chinese tech giants Tencent and JD.com recorded their slowest revenue growth on record, in part due to China’s strict zero-COVID policy measures.

Beyond the uncertainty surrounding the virus, Chinese companies listed in the US face delisting under the Holding Foreign Companies Accountable Act, which placed a three-year countdown from 2020 on companies to allow the the Public Company Accounting Oversight Board to audit them.

A bill accelerating the act’s timeline to two years is expected to pass in US Congress.

The threat of Chinese companies delisting came into sharp relief last year shortly after Didi’s IPO—then the second largest of any Chinese company in the US—when Chinese internet regulators ordered its app to be removed from digital marketplaces and launched a probe into the ride-hailer.

Last week, the nearly yearlong saga began its approach to a conclusion as Didi shareholders voted overwhelmingly to go ahead with delisting from the New York Stock Exchange, a decision set to go through as soon as Thursday.

In April, after months without any sign that the US and China were making much progress on an agreement to allow Chinese companies to remain on American exchanges, the China Securities Regulatory Commission, Beijing’s counterpart to the US Securities and Exchange Commission, indicated it expected a deal to be reached soon, injecting renewed optimism into the situation.

But last week the SEC said “significant issues remain” before a deal is to be made. And in Hong Kong, an 11-year-old accord between the US and Hong allowing for accountants from each to work in the other’s market was not renewed for the first time since it was put in place in 2011.

Justin Thomson, head of international equity at T. Rowe Price, said the recent boost in Chinese equities has more to do with optimism around lifted COVID-19 measures than any hopes for an auditing deal to be reached at the moment.

“There is some hope that China is coming out of its very harsh interpretation of lockdown, and the lockdown will be easing,” he said. “I think those are the [reasons] rather than there will be a deal between the SEC and the Chinese authorities.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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