JD, Alibaba stock exodus from New York intensifies

JD, Alibaba stock exodus from New York intensifies
JD, Alibaba stock exodus from New York intensifies

Because Beijing’s efforts have not yet dispelled concerns regarding the companies’ eligibility to remain listed on Wall Street, INVESTORS are shifting a greater portion of their shares in Chinese e-commerce giants to the Hong Kong market.

Bloomberg calculations based on stock exchange data show that as of Tuesday (April 19), 77% of JD.com’s shares are circulating in Hong Kong’s clearing and settling system, compared to 44% at the beginning of the year. Alibaba Gathering Holding’s Hong Kong-recorded share segment rose to 56 percent from 53% during similar period, the information show.

Even though China changed a rule

that had been in place for a decade and could have made it easier for US regulators to get full access to auditing reports, the majority of this year’s conversions at Alibaba and JD.com happened this month.

The actions taken by shareholders at Alibaba and JD.com highlight that the US delisting risk remains a concern, despite the fact that other companies that are listed in both Hong Kong and New York haven’t seen a similar scale of share conversion this year. Investors can avoid direct regulatory shocks that could result in the suspension of trading and liquidation of their stock in the United States by reducing their exposure to American depositary shares.

Louis Lau, fund manager at Brandes Investment Partners, stated, “We are buying incrementally through the Hong Kong shares instead of US shares.” Although Beijing’s efforts have reduced the likelihood of delisting, the odds remain at 50%. The consideration is presently moving onto execution – how might China award US review access and to what organizations.”

The requirement that all publicly traded American companies provide access to audit work papers has divided the United States and China for two decades. Companies risk being removed from the New York Stock Exchange and Nasdaq as soon as 2024 if they fail to comply with requirements for three consecutive years.

At least 23 Chinese businesses

have been included on a list compiled by the US Securities and Exchange Commission as violating auditing regulations.

There are over 200 Chinese companies that are listed in the United States. Of those, about 20 also have a listing in Hong Kong, and that number is expected to grow. To register a conversion, holders of depositary receipts can return their US shares to the depositary bank, which converts them into Hong Kong-listed shares at a predetermined ratio. The proportion of Alibaba and JD.com shares listed in Hong Kong nearly doubled last year.

Certainly, a conversion does not eliminate all risks posed by US delisting. When shares are moved back to Hong Kong, investors will have to deal with a less liquid market and possibly lower valuations.

Jamie Chen, an analyst at Third Bridge Group, stated, “There are more discussions in the market on the differences in liquidity and investor structures between the Hong Kong and US stock markets.” Discounts in valuations and a decrease in turnover are unavoidable outcomes. Listing in Hong Kong carries with it the greatest risk.

This year, Hong Kong’s Hang Seng Tech Index has dropped 27%, and the risk of US listings being abandoned remains a major concern for the industry. After the Chinese ride-hailing company said it would delist its shares that are traded in the US before finding a new location for the stock, Didi Global fell on Monday.

Didi shares lost 6.9%, Alibaba Group Holdings lost 4.3%, and JD.com shares lost 5.5% on Wednesday. 3.4% of Baidu fell.

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