Alternative renminbi-based assets on Wall St

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People walk along Wall Street near the New York Stock Exchange on March 08, 2022 in New York City. [Photo/Agencies]

While U.S.-listed Chinese companies have seen their stock prices fall on expectations from Washington, investors may still find opportunities in yuan-denominated assets to hedge risk amid growing uncertainties over the global market, experts said.

As the U.S. Securities and Exchange Commission on Thursday identified five Chinese companies listed in the U.S. for failing to comply with the Foreign Corporate Liability Act, the prices of all Chinese companies trading on U.S. stock exchanges fell 20 % on average on Friday and the benchmark MSCI China index fell. by 4 percent.

The bleeding hasn’t stopped. Industry giants like Alibaba and Nio lost more than 10% on Monday, while the Nasdaq fell 2.04%. E-commerce platform Pinduoduo, online grocery and food delivery company Dada, and knowledge-sharing website Zhihu all lost more than 20%.

Public data showed that 93.21% of Chinese companies listed in the United States saw their prices contract in the past 12 months. More than 70% of these companies have seen their prices fall below $5 per share. Education, software and internet services companies reported the most drastic slippages.

Bloomberg reported on Tuesday that the U.S. Public Company Accounting Oversight Board (PCAOB) has held talks with Chinese regulators several times recently. The two sides pledged to reach a cooperation agreement so that the PCAOB can inspect mainland Chinese companies registered in the United States and certain Hong Kong auditing firms engaged in mainland Chinese companies.

Wang Zonghao, head of equity strategy research at UBS China, said the US market may have overreacted. The SEC’s tightening grip on Chinese listed companies was overstated in December and prices for these companies have fallen significantly lately.

Weak investor risk appetite, less-than-stellar macro data from China over the past two months and recently lowered profitability forecasts for state-owned companies may have driven the latest sell-off, Wang said.

Most Chinese companies listed in the US are now dual listed.

On the other hand, most mainland Chinese companies listed in the United States qualify for dual listing in Hong Kong, where the securities regulator can further relax its profitability requirements for innovative tech companies. Once approved, about 41 small and medium-sized businesses currently operating in the United States could qualify to list in the city, he said.

Wang also pointed out that the price-earnings ratios of Chinese companies listed in the United States had reached their lowest level in eight years. In anticipation of more stimulative government policies, the profitability of Chinese onshore and offshore companies is expected to improve.

Goldman Sachs analysts also agreed that Chinese stocks have been oversold. The investment bank predicts gains of 16% for the MSCI China index this year. The market estimate for the MSCI China index is expected to be 12.5 times, while the reading is only 9.9 times at present, the lowest in six years.

Experts at Hong Kong-based CSOP Asset Management recommended investing in renminbi assets due to their relatively lower correlation with other markets, especially when worries about geopolitical tensions have become a major consideration.

Similarly, Credit Suisse upgraded China to “overweight” in its 2022 Global Equity Strategy Report, reversing a downgrade in equities 12 months ago. The expected easing of China’s monetary policy, as it tightens elsewhere, has boosted the institution’s confidence in Chinese equities.

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