China’s state-owned enterprises that plan to delist from US stock exchanges slid on Monday, as investors expected more firms to follow suit amid an auditing spat between the two nations.

China Life Insurance Co. dropped as much as 2.2% in Hong Kong, while Aluminum Corp of China Ltd. and China Petroleum & Chemical Corp. lost 2.4% each. Sinopec Shanghai Petrochemical Co Ltd. and PetroChina Co. also fell. The moves follow a drop in their American Depositary Receipts on Friday.

Friday statements from the five firms were seen as reflecting rising US-China tension and a lack of progress in reaching agreement over giving American regulators better access to Chinese firms’ financial data. Analysts expect the developments to hurt sentiment but see little material impact, given the stocks’ modest US trading volume and as they can still get international funding via the Hong Kong market.

“We expect market sentiment might be dampened, as more inactively traded ADSs of Chinese SOEs may follow the delisting,” Citigroup Inc. analysts including Michelle Ma wrote in note. Still, they said negative impact should be “immaterial” as only a small portion of the securities are traded in the US, they said in a report commenting on China Life. 

Jefferies Financial Group Inc. analysts saw this “voluntary delisting” as a sign that China has started a screening process to decide which companies they don’t want to be subject to US audit investigations.

“This is likely a sign that China’s ‘selection process’ has started, instead of a sign that there is no deal,” analysts including Edison Lee wrote in note. “We believe China is setting up a mechanism for it to screen out those companies that they do not want US-listed. Those that pass the test will then be allowed to comply with the SEC audit investigation requirements.”

The Chinese securities watchdog has denied a media report that they plan to group companies into three categories to avoid delisting. On Friday, it said the companies’ delistings are based on their own business decisions.

Hong Kong’s benchmark Hang Seng Index was up as much as 0.4% on Monday, while China’s CSI 300 index climbed 0.7%.

Source:
courtesy of BLOOMBERG

by Jeanny Yu

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