Chinese e-commerce giant Alibaba was one of over 100 companies at risk of being delisted in the US in 2024 if their audit information was not made available to PCAOB inspectors.
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Investors may regain confidence to put their money into Chinese tech stocks as these companies avoid delisting from US stock exchanges and as the Chinese government pledges political support, an investment manager said.
Last week, the US Public Company Accounting Oversight Board said it had been given full access to inspect and investigate Chinese companies for the first time after China finally gave the US access in August.
More than 100 Chinese tech companies including Alibaba, Baidu and JD.com were at risk of being delisted in the US in 2024 if their audit information was not made available to PCAOB inspectors.
Investors often struggle with a lack of transparency when it comes to Chinese stocks.
“It will allow institutional investors to come back. Professional investors were very afraid of this delisting risk, which is why they stayed on the sidelines,” Brendan Ahern, chief investment officer at U.S. investment manager KraneShares, told CNBC’s “Squawk Box Asia” on Wednesday.
As of September 30, 262 Chinese companies were listed on US exchanges with a total market capitalization of $775 billion, according to the United States-China Economic and Security Review Commission.
“As that risk is removed as a result of the PCAOB announcement, you will see investment money flowing back into these names,” Ahern said.
“It’s in these internet giants that investors really want to invest when it comes to China,” Ahern said.
But he also qualified that it’s still “early days, weeks, months to see Capital go back to space”.
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However, he also noted that political support will help boost the growth of these companies. Last week China pledged to boost domestic consumption next year as the country spurs growth after exiting its zero-Covid policy.
“2023 is a year where we’re going to get a lot of government support, like boosting domestic consumption,” Ahern said. “About 25% of all retail sales go through the companies.”
“The Chinese government actually needs these internet companies, which explains why we rolled back some of the regulatory scrutiny that we saw in 2021,” Ahern said.