China Stocks: What to Expect When Markets Reopen Stocks in Shanghai, Shenzhen, and Hong Kong took off last week and continued their climb on Monday, posting their best single-day rally in 16 years. This surge came after several announcements from Beijing aimed at boosting the country’s economy.
But now, The Shanghai Stock Exchange will be closed from Oct. 1 to Oct. 7 for China’s National Day celebrations, and Hong Kong’s market will also shut on Oct. 1. However, U.S.-listed China ETFs will still be trading, so when the Chinese exchanges reopen on Oct. 7, we could see big moves as global investors get ahead of the Chinese market.
China’s stock market is known for its wild swings, mainly because retail investors make up about two-thirds of the trading. That means we might see some significant volatility once the markets open back up.
HXC trade ideas
China has wandered the wrong pathThe chart looks like crap. There is very little support between here and the red box.
The story:
To have strayed away from the hand that fed them, to turn and bite it.
The old system had an old valuation model.
The new system is unknown, but likely bad news.
America is number one. China will be a lesson to the next country which has the honors of being #2.
Which Chinese firms face delisting from US stock exchanges?Geopolitical tensions between China and the US have escalated in recent years amid efforts by both countries to become the world’s economic powerhouse.
Speculations that the Chinese economy would overtake the US by 2030 have led to tit-for-tat tariffs, sanctions, and a revamp of capital market rules aimed at reducing Chinese companies’ access to American investors’ money.
Last week, the US Securities and Exchange Commission added more than 80 more companies to a growing list of Chinese firms that are facing a potential delisting from US stock exchanges.
Trump-era accounting law
Former President Donald Trump signed into law the Holding Foreign Companies Accountable Act (HFCAA) in December 2020, threatening to kick Chinese companies off US bourses if they fail to comply with auditing rules set by the US Public Accounting Oversight Board.
China has since repeatedly slammed the law, describing it as discriminatory and distorts "the basic norms of the market economy." Beijing also denies access to listed companies’ accounting documents, citing state secret concerns.
Protecting state secrets
The country's State Secret Law, which was enacted in May 1989, seeks to protect state secrets and safeguard national interests. This law has prevented the Chinese units of the Big Four accounting firms from handing over certain corporate information to overseas entities.
Even before the HFCAA was passed, the US has already expelled a number of big Chinese firms like the country’s big three telcos: China Telecom (HKG:0728), China Mobile (HKG:0941) and China Unicom (HKG:0762). China Telecom and China Mobile have since raised funds in the mainland market, joining China Unicom to tap into local capital. The Trump administration cited the company’s alleged ties with the Chinese military as the reason for the move.
Chinese oil major China National Offshore Oil or CNOOC (HKG:0883) was also delisted from the New York Stock Exchange in October 2021 for the same reason, prompting it to raise funds at home. Less than a month ago, CNOOC raised about $4.4 billion on the Shanghai Stock Exchange in one of this year’s biggest IPOs.
Most recently, more firms could be booted from US bourses after the SEC released a provisional list of firms that are found to be violating US auditing rules.
Dozens face delisting risks
Last week, more than 80 companies have been added to the list including CNOOC peers Sinopec (NYSE:SNP) and PetroChina (NYSE:PTR). Both companies are already listed on the Shanghai bourse.
Tech firms including e-commerce giant JD.com (NASDAQ:JD), Tencent Music Entertainment (NYSE:TME), Trip.com (NASDAQ:TCOM) and electric carmaker NIO (NYSE:NIO) were also added to the list last week, joining big names like aluminum giant Aluminum Corp. of China or Chalco (NYSE:ACH).
Some firms like JD.com have since vowed to protect their US listing status. The company on Thursday said it will "strive to maintain” its listing on the Nasdaq stock market and has been actively exploring possible solutions.
Market reaction
The Nasdaq Golden Dragon China Index, which tracks 98 of China's biggest US-listed firms, tumbled over 17% over the past five trading sessions since the May 4 SEC announcement.
The passage of the HFCAA marks the latest challenge for US-listed Chinese companies after the SEC earlier warned American investors about investing in shares of Chinese companies that operate through a variable interest entity (VIE) structure, which had been used by companies like Alibaba (NYSE:BABA) to bypass foreign investment restrictions.
The SEC warned in September 2021 that if either the Chinese firm or its US-listed shell company breach their contracts, "US investors may suffer significant losses with little or no recourse available."
Are investors bullish on Chinese stocks again?A raft of regulations targeting a number of sectors — from technology to real estate and education — have hammered Chinese stocks late last year and into 2022, and although many economists remain bullish on Chinese stocks’ potential, Beijing’s relationship with the Kremlin is now weighing on investor appetite for Chinese shares.
On Friday, April 1, Shanghai’s SSE Composite Index tumbled 5.8% year on year, and is down 9.6% from the start of the year. The SZSE Component Index, the benchmark index of the tech-heavy Shenzhen Stock Exchange, is also down 13.2% year over year on Friday, and 17.3% lower year-to-date.
The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, likewise tanked 31.9% from last year as of Friday, and down 8% year-to-date.
2021 in retrospect
In 2021, Chinese companies were hit with regulatory changes as Beijing sought to weed out anti-competitive behavior, online gaming addiction, excessive childcare and education costs, and eliminate other risks in the private sector.
Beijing’s crackdown on the tech and financial technology sector led to the record fine of over 18 billion yuan (around $3 billion) on Alibaba (NYSE:BABA), the transition of Alibaba’s mobile payments arm Ant Group into a financial holding company and a raft of rules aimed at data security and anti-monopoly, among others.
The government also targeted the education sector last year, launching sweeping rules that upended for-profit tutoring companies. New rules aimed at protecting minors also took a toll on the operations and revenue of big gaming companies like Tencent Holdings (HKG:0700) and NetEase (NASDAQ:NTES).
Towards the end of last year, the vulnerability of China’s property sector came to light as China Evergrande's (HKG:3333) massive debt pileup of more than $300 billion highlighted the risks of the country’s highly-leveraged real estate sector that many fear would lead to a wider contagion affecting the country's financial industry and the global markets.
These factors led to a sell-off of Chinese stocks at home and in the US, with the Nasdaq Golden Dragon China Index (INDEXNASDAQ: HXC), which tracks 98 of China's biggest US-listed firms, posting its sharpest drop since the financial crisis of 2008 in March after reaching an all-time high in February 2021. As of writing, the HXC is trading lower than its 2008 peak after retracing approximately 70% of the gains it made since its 2008 bottom.
Booting Chinese stocks from US exchanges
Geopolitical tensions and data security concerns prompted the US Securities and Exchange Commission to tighten its auditing rules on Chinese companies listed on US bourses. This threatens the US listing status of companies like KFC operator Yum China Holdings (NYSE:YUMC), Twitter-like Weibo (NASDAQ:WB), Baidu (NASDAQ:BIDU), and iQIYI (NASDAQ:IQ).
Even before these firms were added to the SEC’s “provisional list” of companies that are found to be violating the US Holding Foreign Companies Accountable Act, the US has already booted several Chinese companies — including China’s big three telecommunications companies — over the past year, citing data security concerns and other alleged violations.
Bullish on Chinese stocks
Despite uncertainties over the outlook for China’s regulatory environment in the coming years, some global banks and economists including Bernstein, Credit Suisse and Goldman Sachs remain bullish on Chinese stocks.
Credit Suisse upgraded its outlook on China, noting that values may be depressed, while Goldman Sachs underscored the investability of Chinese assets due to the liberalization and reform measures in the Chinese capital markets, which according to the bank backs its view that China equity is an asset class “that is too big, too growthy, and too vibrant to ignore.”
Geopolitical woes, COVID-19 risks remain
However, some economists are polarized on their outlook on Chinese stocks due to lingering geopolitical tensions and the resurgence of COVID-19 cases that recently prompted lockdowns in two of the country's most populous cities.
Reports highlighting Beijing’s relationship with Russia might be reducing investor appetite for Chinese stocks. Beijing has refused to back a global condemnation of the Kremlin’s military actions against Ukraine, refusing to describe the attacks as an invasion.
US-listed Chinese companies have lost over $1.1 trillion in market value in recent weeks due to these concerns and Asian Corporate Governance Association’s Jamie Allen told CNBC over a week ago that the delisting of US-listed Chinese firms could come in the next two to three years.
CHINA THE GREAT COLLAPSE pulled 786 of the 12 yr bull market Well whats next . so far china 12 yr bull market with growth of 7 % or more has just drop a fib pull back to .786 and to match the what was called the GREAT BEAR MARKET CRISIS it drop then 72.5 % this world match it a target of 5840 to 5750. is the rest of the world to catchup or we about to see an event my next major spiral turn which also my fib cycle event march 25 plus or minus 1 day so far these are the past turn dates 3/18/ 21/2020 low 9 2 2021 a top for most market 1/27th 2022 +or - 1 a low . feb 16/18 flat 3/25/22 is a minor date for 3/21 2022 and 5 spirals I stand by a world event on or about this date
Chinese Stock Crashed Is the U.S Next??May Lead to Global "Systematic Sell Off"
Relationship Between
U.S Equities and Chinese Equities
China is a Credit Bubble
Remember Back in 2018 Economy was about 40 Trillion Dlls Worth of Assets in their Banking System Now We are About 52 Trillion Dlls it's a 314 % of their GDP Today
Posible Correction in U.S Equities 20%-25%
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