The state-owned enterprises that plan to delist from US stock exchanges fell on Monday, as investors expected more firms to follow suit amid an auditing spat between the two nations.
PetroChina Co. dropped 3.4% in Hong Kong, while China Life Insurance Co. and China Petroleum Chemical Corp. lost more than 2% each. Sinopec Shanghai Petrochemical Co Ltd. and Aluminum Corp of China Ltd. also fell. The American Depositary Receipts dropped on Friday.
The rush to leave the US market was seen as a result of rising bilateral tension and lack of progress in reaching an agreement over giving American regulators better access to Chinese firms financial data. Market reaction suggests traders are wary of the added uncertainty at a time when the economy is slowing, despite some analysts expecting the move to have a limited share-price impact on the stocks modest US trading volume.
The two sides failing to reach a deal soon would lead to mega-cap Internet companies applying for delisting, said Redmond Wong, strategist at Saxo Capital Markets. That risk is increasing, and it is going to cause a crisis for the market. Citigroup Inc. analysts including Michelle Ma wrote in note: "China State-Owned Giants to Delist From US Amid Audit Spat 2 We expect market sentiment to be dampened as more inactively traded ADSs of Chinese SOEs may follow the delisting. They said the negative impact should be unaffected, as only a small portion of the securities are traded in the US, they said in a report on China Life.
Jefferies Financial Group Inc. Analysts saw this voluntary delisting as a sign that China has started a screening process to decide which companies they don't want to be subject to US audit investigations.
We believe that China is setting up a mechanism for it to screen out companies that they do not want to be listed in the U.S. Those who pass the test will be allowed to comply with the SEC audit requirements. The Chinese securities watchdog has denied a media report that they plan to group companies into three categories to avoid delisting. The companies that have been out of office are based on their own business decisions, according to a statement released by the company on Friday.
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