July 2, 2020
To whom it may concern,
This question is in regards to US-listed emerging market companies, particularly those from China (e.g. Alibaba, Netease, JD.com).
In my role I select/recommend investment managers for our clients. In discussing recent developments - the Holding Foreign Companies Accountable Act, combined with recent activity by these same companies to list their stock in Hong Kong - many point to the 3-year non-compliance period as evidence that there is low immediate risk from these developments. Many also add that their specific investments are expected to be fully compliant, anyway.
It appears to me that most professionals view the de-listing risk as coming from the potential for punitive action by U.S. regulators. However, no one has voiced concern regarding the risk of these companies proactively de-listing. While unlikely, one could envision scenarios where either the companies themselves, or the Chinese government, would rather the NYSE/NASDAQ listings be removed than comply with U.S. regulations. That most companies are now dual-listing in Hong Kong seems to be evidence of at least contingency plans being made.
My specific question for the panel: In your view, what is the risk of proactive de-listings initiated by either Chinese companies themselves or by some kind of government legislation in China requiring them to? What is the worst possible outcome for a U.S. retail investor if these companies were to suddenly de-list, assuming that investor cannot own the shares in Hong Kong or elsewhere?
Thank you for your consideration,
Slavi Fildishev
Analyst, Investment Manager Research
Edward Jones