Chinese stocks in the US devalued by 600 billion in seven months, and a much worse future is expected

Chinese companies listed on the US stock market have been a headache for investors, who have seen their holdings lose much of their value due to high regulatory pressure from the Asian government and difficulties in finding new clients.

According to May data from the US and China Economic and Security Review Commission, 248 companies in the Asian country were listed on US stock exchanges, with a total market capitalization of $ 2.1 trillion. However, to this day, the value of these listed companies has fallen to 1.5 trillion, 600,000 million dollars less.

Valuations have fallen dramatically and there have been no more than four public offerings in the second half of the year, compared to the 30 that were carried out during the first six months of 2021. However, a large part of these operations did not come to fruition despite the fact that these companies had enormous growth potential.

However, the first half of the year predicted a markedly different result for the end of the year. Quite simply, the 30 IPOs that occurred between January and June raised a total similar to that collected by Chinese listed companies throughout 2020. These 34 companies have raised 12.6 billion this year, compared to the 11,700 million raised by the 30 companies that went public in 2020.

On the contrary, the results for the investors who acquired those shares have not been so optimistic. “Even if the Chinese government and the US government gave the green light to these companies, the average return on IPOs in 2021 is negative: 42%. Only 12% are trading positive,” he said.

Didi can be the mirror in which the rest of the Chinese listed companies look at themselves

Didi is the perfect example of what could happen to the rest of the Chinese companies that are still listed on the US markets. The urban transport company registered the largest IPO of 2021. However, it fell apart a few days after the initial offering and is currently in the process of listing its listing on the Hong Kong Stock Exchange.

From the first moment, the Chinese administration pressured Didi, warning the company not to go public in the US, since the regulators of the Asian country considered that it had too much data that made it a risk for national security, as reported in July The Wall Street Journal.

Thus, after raising more than 4,000 million in its IPO, Didi had a market capitalization of around 80,000 million dollars. Today, the value of the company does not reach 25,000 million.

New American regulations

The pressure from the Chinese government on their companies is joined by new regulations from the US administration. This is where the new Law on Liability of Foreign Companies that will be launched. This rule establishes that any foreign company listed on the US stock exchanges must undergo periodic audits by the Public Companies Accounting Oversight Board. Failure to do so will be removed from the list after three consecutive years of non-compliance.

This new regulation will greatly affect Chinese listed companies, as companies must provide evidence that they are not controlled by their governments. It should be noted that many companies have members on their boards directly linked to the Communist Party or the Chinese army, as they have claimed since MarketWatch.

Notably, the China Securities Regulatory Commission announced earlier this month that it was in discussions with US regulators about their possible cooperation in auditing their US-listed companies.

However, the Xi Jinping government is not in the business of easily allowing the US to obtain data from its companies, which will inevitably lead to the delisting more Asian companies from US exchanges.

This leaves investors with a focus on the future of the most popular listed companies, such as Alibaba. However, while they wait, their investments have already been markedly devalued. The e-commerce giant, for example, lost half its value in 2021 and, in fact, it would be preparing its possible exclusion from the US markets.

Beware of companies that have not planned a double listing

Small investors will be the most affected by this trend. The greatest danger will be found in those who are positioned in companies that have not planned a double listing. That is, those companies that can be excluded from the US stock exchanges and do not meet the requirements to enter the Hong Kong. These will be the most dangerous to possess.

In fact, the demands of Chinese regulators are extremely complex. According to Morgan Stanley, these companies must have a market capitalization of at least $ 2 billion at the time of the offering, and the latest annual revenue must exceed $ 500 million. In addition, they must have a positive aggregate three-year operating cash flow of $ 100 million, among other requirements.