Chinese equities staged a historic rebound after top government bodies vowed to provide market support and, most notably, claimed to make progress on issues regarding U.S. listings. Could this lead to sustained calm for the market?
After a historic beatdown of Chinese equities over the past week that included a $1.5 trillion wipeout in two sessions, history was made again yesterday with a major rebound.
The Hang Seng China Enterprises Index – a benchmark tracking mainland firms listed in Hong Kong – rose 13 percent yesterday, marking the largest one-day gain since the global financial crisis.
This was widely viewed as a response to a pledge by Beijing to provide market support.
State Council Support
Beijing’s pledge to support markets was first voiced in a media report by official state news agency «Xinhua» which cited a committee meeting of the State Council – China's top administrative body – chaired by vice premier Liu He.
The statement said that Beijing would vow to maintain market stability, support overseas listings and noted that efforts to «rectify» internet platform companies would end soon – a significant signal that the domestic tech crackdown could be in its final chapters.
The People’s Bank of China as well as the China Banking and Insurance Regulatory Commission also followed suit to pledge support for market stability.
Audit Concessions
The statement also notably remarked on progress made from talks with American authorities on disclosing audit information at Chinese firms under the U.S. Holding Foreign Companies Accountable Act in order to prevent mass delistings.
Separately, a «Financial Times» report citing unnamed sources familiar with the matter, Beijing is preparing to make concessions on the disclosure of some audit information. Regulators are finalizing plans on what financial audit information can and cannot be disclosed abroad, which would provide further clarity on a law that currently prohibits foreign regulators from conducting investigations within China.
Access to U.S. Markets
While it may be harder to forecast the effective impact of direct government support, it is easier to grasp the risk of Chinese equities losing access to exchanges in the U.S. which remains home to the world’s largest and deepest market.
Interestingly, the recent rounds of deepened sell-offs first started after the U.S. Securities and Exchange Commission issued a warning last Thursday on the potential delisting of five companies – BeiGene, Yum China, Zai Lab, ACM Research, and HUTCHMED – if they failed to comply with auditing requirements.
