US-listed Chinese companies transfer large chunks of shares to Hong Kong - PingW...

US-listed Chinese companies transfer large chunks of shares to Hong Kong

US-listed Chinese companies transfer large chunks of shares to Hong Kong

6 hours ago

Some US-listed Chinese stocks have shifted large chunks of shares to Hong Kong, The Wall Street Journal reported, citing data from Hong Kong Exchanges & Clearing on Wednesday (HKEX).

At the end of March, more than 53% of e-commerce giant Alibaba Group's tradeable shares were registered with Hong Kong's central clearing system, up from 38% at the end of last year. In November 2019, when Alibaba made its secondary listing in Hong Kong, only 2.7% of its outstanding shares were registered in the city.

JD.com’s tradable share in Hong Kong has now grown from 5% to about 55%, while Li Auto has grown from 6% to about 38%, according to a chart compiled by The Wall Street Journal.

The trading volume also increased in Hong Kong with the migration of shares. In the first quarter, nearly 27% of trading volume in Alibaba shares was in Hong Kong, up from about 16% a year earlier, according to HKEX.

In recent years, the audit dispute between China and the US has intensified, putting Alibaba, NetEase, Bilibili, and others in dilemma: US regulators were demanding that US-listed Chinese companies provide PCAOB with full access to their audit documents or they will be delisted by 2024, while Beijing has rejected the request, citing data security concerns. The Public Company Accounting Oversight Board (PCAOB) is a corporation that oversees audits of public companies and other issuers to protect the interests of investors.

To mitigate the risk of delisting, a group of US-listed Chinese companies has conducted secondary listings in Hong Kong around 2020 and 2021: in case they are removed from the New York Stock Exchange or Nasdaq, investors can still trade or hold their shares on the Hong Kong Stock Exchange.

Naturally, global fund managers who hold US-listed Chinese stocks are turning to the Hong Kong Stock Exchange as well.

Reuters reported last August that the KraneShares CSI China Internet ETF (KWEB), a New York-listed fund focused on Chinese technology stocks, began swapping American Depositary Receipts (ADRs) into Hong Kong shares in December 2021.

As of August, Hong Kong-traded stocks make up more than 70% of KWEB's portfolio, compared to 25% in March 2021. The fund also said it aims to be fully invested in Hong Kong stocks by the end of 2022.

Thomas Masi, co-portfolio manager of the GW&K Emerging Wealth Strategy, which is heavily exposed to China, has also moved holdings in companies such as Alibaba from New York to Hong Kong, the report said.

Amid the surge in delisting risks, some asset management firms have slashed their holdings in Chinese firms. Bridgewater, for example, sold its entire stake in Alibaba, roughly 7.5 million shares, according to the company's 13F filing last August. Prior to the sale, Alibaba was one of the prominent hedge fund's most important positions. During this period, Bridgewater also liquidated its entire holdings in Bilibili, NetEase, JD.com and DiDi.

While the PCAOB gained full inspection powers over US-listed Chinese companies last December, which eliminated the delisting concerns, the process of moving more shares to Hong Kong seems irreversible because this market is closer to their primary investor base and the risks are more manageable.