Source: CITIC SEC Research
Authors: Xu Guanghong and Wang Yihan.
The topic of delisting Chinese concept stocks has resurfaced. It is believed that under the provisions of the Accelerated Foreign Company Accountability Act, Chinese concept stocks listed in the USA may face delisting pressure as early as the first half of 2026. Additionally, the US may continue its criticism of the VIE structure regarding Chinese concept stocks. A review of key moments in the historical evolution of regulatory oversight for Chinese concept stocks reveals a negative correlation between the transaction proportion of Chinese concept stocks listed in both markets and the subsequent stock price changes after delisting risk occurs. However, as of Q1 2025, the transaction proportion of Chinese concept stocks listed in both markets in Hong Kong has reached 37%, suggesting that the new delisting risk impact may be less than in historical ranges.
Looking back at fund holding data, nearly half of the fund holding market value of Chinese concept stocks listed in both markets has converted to Hong Kong stock holdings during the entire delisting risk fermentation period. This reflects that Hong Kong stocks indeed have the capacity to absorb US stock transactions and investors under the delisting risk of the US stock market. Currently, the proportion of holdings by institutions and funds in Chinese concept stocks listed in both markets stands at 24.09%. Among these, it is estimated that 10.34 billion US dollars in market value, or 1.46% of the market value of Chinese concept stocks listed in both markets, would be forced to be sold under the assumption of US stock delisting.
Additionally, it is not believed that Hong Kong stocks cannot absorb a large-scale repatriation of Chinese concept stocks. On one hand, the liquidity of the Hong Kong stock market has significantly improved. On the other hand, the forced delisting from the US stock market would effectively transfer trading from the US market to the Hong Kong market, providing incremental liquidity to Hong Kong stocks. Furthermore, under short-term stock price impacts, there will be buying support in both the Hong Kong and US markets. The forced delisting from the US stock market does not alter the inherent value or fundamentals of companies, and the short-term negative impact may represent a good buying opportunity.
The issue of Chinese concept stock delisting has been long-standing. In addition to continuing to strengthen information disclosure issues, the corporate structure of Chinese concept stocks may be a target.
US Treasury Secretary Scott Bessent, during an interview with Fox on April 9, 2025, was asked about the issue of Chinese concept stock delisting and stated, "Everything is on the table"; on the same day, the newly appointed SEC Chairman Paul Atkins expressed radical views on the delisting issue of Chinese concept stocks in the US Senate, further igniting market concerns about the delisting of Chinese concept stocks.
According to the Accelerated Foreign Company Accountability Act, Chinese concept stocks could face delisting risk due to PCAOB audit issues as early as the first half of 2026. Additionally, it is speculated that the ownership risks posed by the VIE structure will be a focal point of regulatory scrutiny from the US, and it is considered that creating new regulatory legislation concerning the corporate structure of Chinese concept stocks is not difficult.
Listing in Hong Kong to avoid delisting risks serves as a backup for US-listed Chinese concept stocks.
As of April 25, 2025, there are already 34 Chinese concept stocks listed in both Hong Kong and the USA, among which 12 are listed as secondary listings in Hong Kong and 22 have completed dual primary listings in Hong Kong, accounting for 72% of the overall Market Cap of Chinese concept stocks; there are still 23 Chinese concept stocks that have not yet listed in Hong Kong, which may account for 21% of the overall Market Cap of Chinese concept stocks. We estimate the compliance with the conditions for secondary/dual primary listings in Hong Kong based on the "Secondary Listing Rules."
If Chinese concept stocks that have already been listed in Hong Kong face mandatory delisting from the US market, those with dual primary listings will not be affected in Hong Kong, while the secondary listed stocks' Hong Kong shares will automatically convert to primary listings, and the Hong Kong Stock Exchange will grant a grace period regarding the "Listing Rules" as deemed necessary. Based on historical cases of delisted stocks that were listed in both Hong Kong and the US, it is common to provide ADR conversion channels to Hong Kong shares as a delisting solution, ultimately resulting in the Hong Kong market taking on most of the previous US stock transactions and US investors.
US stocks with a high proportion of ADR trading may face greater impact.
We selected three key regulatory event nodes in history corresponding to key stages of the evolution of audit regulation for Chinese concept stocks, analyzing the proportion of trading volume and correlation of stock prices for Chinese concept stocks listed in both Hong Kong and the USA during historical phases. The results show that stocks with a higher trading proportion in the US before risk events face greater selling pressure in the US market and therefore have greater downward pressure on their stock prices.
However, as of Q1 2025, 37% of the trading volume of Chinese concept stocks listed in both Hong Kong and the US has occurred in the Hong Kong market, significantly higher than during the delisting risk outbreak period from 2020 to 2022. Thus, we believe the potential short-term price impact from a new round of delisting risks for Chinese concept stocks may be limited compared to before.
US stocks with a high percentage of holdings by Funds may face a greater impact, especially those limited to investments only in the USA.
We compiled data on Fund holdings of Chinese concept stocks from mid-2021 to mid-2022 and found that during the delisting risk brewing period, 34% of the funds holding Chinese concept stocks listed in both markets converted their shares, with 46.2% of the US stock holdings by these funds converting to Hong Kong stock holdings; among actively managed funds, 33.5% converted their US stock holdings to Hong Kong stocks, while the percentage for passive funds reached as high as 80.9%.
Currently, there are 34 stocks listed in both Hong Kong and the USA, and based on the disclosed data since the end of 2024 (including Fund Holdings, 13-F, 20-F, etc.), the Market Cap proportion of Institutions and Funds in the USA accounts for 24.09% of the total; furthermore, differentiating by the investment Range of Funds indicates that those invested in the USA may not be able to convert into Hong Kong stock holdings. As a result, it is estimated that about 10.34 billion USD Market Cap, or approximately 1.46% of the Market Cap of the Chinese concept stocks listed in both markets, will be forcibly sold under the assumption of delisting in the USA.
The "historical" liquidity issue in Hong Kong stocks does not pose a resistance to the return of Chinese concept stocks.
It is not believed that the Hong Kong stock market will be unable to accommodate the return of Chinese concept stocks.
On one hand, the liquidity of the Hong Kong stock market is gradually improving, and the Cash of Chinese concept stocks going public in Hong Kong for a second time is also relatively abundant, showing little pressure in the primary market; on the other hand, the "historical" liquidity issue in the secondary market can be attributed to the investor structure and historical market structure of the Hong Kong stock market, both of which have seen improvements after the influx of Chinese concept stocks.
From Historical Data, the return of Chinese concept stocks has actually brought a large amount of liquidity to the secondary market in Hong Kong stocks. On one hand, this has altered the trading structure of the Hong Kong stock market; on the other hand, high-quality Assets being listed in Hong Kong stocks has also enhanced the attractiveness of the Hong Kong market. Moreover, the forced delisting from the USA effectively translates the trading from the USA to Hong Kong, bringing incremental liquidity to the Hong Kong market. Under the short-term price impact, there will be Bid support in both Hong Kong and the USA; and the forced delisting from the USA does not change a company's intrinsic value or fundamentals, making the short-term negative impact a good opportunity to Buy.
Risk factors:
1) Intensification of friction in Technology, Trade, and Finance sectors between China and the USA; 2) Policy力度, implementation effectiveness, and economic recovery in China falling short of expectations; 3) Unforeseen tightening of macro liquidity both domestically and internationally; 4) Further escalation of conflicts in the Russia-Ukraine and Middle East regions.
Editor/rice
