Hong Kong stocks enter correction phase as bears maul Tencent, US audit law puts Chinese firms at risk of expulsion from Wall Street

Martin Choi
·3-min read

Hong Kong stocks fell into a correction phase while losses on mainland China markets deepened amid regulatory concerns after the US adopted rules requiring Chinese and other foreign-listed companies to submit financial audits, or face ejection from Wall Street.

The Hang Seng Index tumbled by as much as 1.5 per cent before closing 0.1 per cent weaker at 27,899.61 on Thursday. The benchmark declined for a fifth day, the longest losing streak since September 2019, bringing the slide to more than 10 per cent from its February 17 high.

The Hang Seng Tech Index fell 1.2 per cent, also a fifth day of slump. Tencent Holdings, the market’s most valuable company crashed almost 3 per cent, bringing the slide past 20 per cent from its January 25 record. A drop of 10 to 20 per cent typically denotes a correction or a bear market.

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Other technology stocks also suffered a drubbing. Smartphone maker Xiaomi Corp lost 4.4 per cent to HK$23.90 while AAC Technologies fell 1.1 per cent to HK$39.65. Alibaba Group Holding, the owner of this newspaper, tumbled 3.9 per cent to HK$221.

The US Securities and Exchange Commission is taking initial steps to force accounting firms to let regulators review the financial audits of overseas companies, according to a statement on Wednesday.

The penalty for non-compliance, as stipulated by a law known as The Holding Foreign Companies Accountable Act (HFCA) that Congress approved in December, is ejection from the New York Stock Exchange or Nasdaq.

“Regulatory disruptions such as the HFCA Act amud geopolitical risks and tension are likely to persist,” said Bruce Pang, head of research and macro strategy at China Renaissance Securities in Hong Kong. “It will be hard for China’s homegrown tech giants to argue or justify that they are not influenced by the government. The SEC public consultation will give us more colours on how their ADRs would be flagged under these terms.”

The Shanghai Composite and the CSI 300 of biggest stocks in Shanghai and Shenzhen recorded small losses, after retreating by about half a percentage point. An index of Chinese enterprises listed in Hong Kong fell almost 1 per cent.

An S&P Dow Jones index tracking 50 US-listed Chinese stocks fell 6.8 per cent on Wednesday, the most since March 16 last year. The gauge has declined almost 14 per cent since February 26, set for the first monthly loss since September, according to Bloomberg data.

Before Thursday’s trading. MSCI benchmarks tracking Chinese stocks have slumped by 14 to 17 per cent from their peaks.

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Tencent fell 2.8 per cent to HK$606, following after a 5.1 per cent overnight losses in its American depositary shares. The tech giant confirmed a “voluntary” meeting between founder Pony Ma Huateng and Beijing’s antitrust authority.

The slump from its record-high on January 25 has erased HK$$1.54 trillion (US$198 billion) from its market value.

Two companies debuted in China. In Shanghai, Hangzhou Alltest Biotech rose 30 per cent from its offer price of 133.67 yuan. Cosmetics manufacturer Yunnan Botanee Bio-Technology rose 244 per cent from its listing price of 47.33 yuan in Shenzhen.

Markets in the Asia-Pacific were holding up with small gains. Japan’s Nikkei 225 jumped 1.1 per cent, while South Korea’s Kospi added 0.4 per cent. Australia’s S&P/ASX 200 rose 0.2 per cent.

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