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US-Listed Chinese Tech Companies No Longer See Hong Kong Listing as Vital Hedge Strategy Following PCAOB Development

A number of US-listed Chinese companies have reportedly suspended plans for a potential Hong Kong listing. According to The Information, these Chinese tech companies include agricultural tech giant Pinduoduo Inc (NASDAQ: PDD) and Full Truck Alliance Co (NYSE: YMM).

Although Pinduoduo merely paused discussions regarding a potential Hong Kong listing, Full Truck Alliance scrapped its plans altogether. Meanwhile, tech heavyweights such as Alibaba and JD.com have also made significant strides toward a Hong Kong listing over the years. The primary motivating factor for this agenda is to hedge the risk of a potential US delisting amid socio-political disputes with China. The US and the influential East Asian nation (two of the world’s largest economies), are locked in a tense trade and tech war.

The development regarding Chinese companies with US listings halting Hong Kong plans follows news of a possible investigation. About two weeks ago, the US accounting watchdog Public Company Accounting Oversight Board (PCAOB) announced that it had unrestricted access to inspect and investigate Chinese companies. This is the first time the PCAOB would have such oversight.

In addition, the announcement also negated the risk of having up to 200 Chinese firms booted off US bourses amid fractured relationships between both countries. On December 15th, PCAOB Chair Erica Williams explained:

“For the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them.”

B. Riley Financial chief market strategist Art Hogan also pointed out the relief experienced by Chinese firms like Alibaba. As Hogan put it:

“[The PCAOB announcement] falls into the category of a game changing view of Chinese companies because the threat of their delisting seems to have been eliminated.”

Despite the welcome news at the time, Chinese companies’ US-listed shares gave up gains and ended sharply lower. For instance, on Friday, December 16th, Alibaba, JD.com, and Baidu were all trading down between 3-5%. In addition, the shares of prominent music streaming provider Tencent Music were down 3.5%. The decline in these Chinese US-listed shares was steeper than the broader market decline. For instance, the S&P 500 Index was down 2.5%, while the iShares MSCI China ETF sank 2.2%.

In November, Alibaba’s Q2 2023 financial report fell short of revenue expectations. According to reports, factors that caused the miss included slow spending and Covid restrictions. Weighing in on the subpar earnings release at the time, Alibaba CEO Daniel Zhang stated that the company remains undeterred. As he put it, “the uncertainties of the global landscape have only reinforced our resolve to focus on building capacity that will yield sustainable, high-quality growth for our customers and our own business over the long term.”

Zhang also noted that the trust shown by Alibaba’s shareholders over the years is responsible for the company’s continuous growth. In addition, the CEO stated that Alibaba plans to improve shareholder returns looking forward.

US-Listed Chinese Tech Companies No Longer See Hong Kong Listing as Vital Hedge Strategy Following PCAOB Development

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