When KraneShares CSI China (KWEB) closed at $24, down by 9.88% last Friday, it fell to levels not seen since before 2014. Multiple events sent the Chinese ETF lower.
KWEB, which has a 12% weighting in Tencent (TCEHY), Alibaba (BABA) at 10.37%, JD.com (JD) at 8%, and 8% in Baidu is down on renewed fears of delisting risks. The Securities and Exchange Commission listed hundreds of China-based companies that face delisting by 2024. The companies are stuck between China’s regulatory rules and SEC rules. China is protecting customer data and does not want foreign firms to have access to it or financial information.
The SEC requires that any company listed on the exchange must be allowed to audit its financial statements.
The SEC’s more stringent rules are meant to protect investors. China-based companies cannot continue their listing. Already, companies like Alibaba, Li Auto, XPeng, and more recently Nio listed their shares on the Hong Kong exchange. Fearless investors may buy Chinese companies now. Upon delisting, they may continue to invest in them by holding them on the Hong Kong exchange.
Luckin Coffee, which created false sales transactions from April 2019 to January 2020, was delisted when authorities accused it of fraud. The company eventually paid a $180 million fine with the SEC. Luckin stock eventually recovered.
Investors are gambling if they buy Chinese stocks at this time. Avoid them.