Chinese stocks listed in the United States saw their worst day of trading since 2008 on Thursday, driven by fears of potential delisting in U.S. markets under a law that requires the companies to hand over audit information to American regulators. Reverberations were felt in Chinese markets on Friday, where many shares had sharp declines.
The Securities and Exchange Commission this week named five Chinese companies that could face delisting under a Trump-era law that aims to scrutinize firms with potential ties to foreign governments or the Chinese Communist Party. The companies have three years to comply and turn over the information.
Among the companies identified in the S.E.C.’s list released were fast food operator Yum China Holdings, which runs KFC and Taco Bell in China, and the drug developer BeiGene.
After the announcement, the Nasdaq Golden Dragon China Index, which tracks Chinese companies that are traded on Wall Street, fell by more than 10 percent.
The slide continued in Asian markets on Friday.
Tech stocks listed in Hong Kong led the slump, with the Hang Seng Tech Index down 4.28 percent at market close. JD.com and Alibaba also saw steep losses, dropping by 15.8 percent and 7.9 percent respectively.
“The clock is ticking, and some of the investors have lost patience, and they are leaving this space in the face of uncertainty,” said Bruce Pang, a Hong Kong-based analyst with China Renaissance Securities. He said the delisting threat was adding to general investor anxiety over the broader geopolitical fallout from the war in Ukraine and U.S.-China relations.
U.S. lawmakers said in passing the Holding Foreign Companies Accountable Act in 2020 that the new regulations would increase transparency and protect investors from fraud. Chinese regulators said this week they were working with their U.S. counterparts and making progress, but they have also complained that the U.S. was politicizing capital markets regulations and discriminating against Chinese companies.
Chinese law restricts the transmission of certain company financial information out of the country, complicating companies’ abilities to comply with the U.S. law.