Event impact: the delisting of state-owned enterprises is basically in line with expectations, the symbolic significance may be greater than the substance, and the impact on the listing status and transaction of Hong Kong stocks is limited, but the follow-up audit cooperation is worthy of attention.

The event itself: the delisting of state-owned enterprises is basically in line with expectations.Since 2020, the uncertainty of the external regulatory environment faced by Chinese stocks continues to increase. According to the Foreign Company Accountability Act and the subsequent implementation rules issued by the Securities and Exchange Commission (SEC), foreign companies listed in the United States need to:

• 1) if audit manuscripts are not available for three consecutive years (earnings season ending around April 2024), they may face the risk of delisting.

• 2) disclose its relationship with foreign governments and prove that they are not owned or controlled by foreign governments.

Therefore, as a state-owned enterprise, in addition to facing the problem of audit manuscript like other Chinese companiesIt is even more impossible to meet the second requirement, so delisting is expected.

Direct impact: the symbolic meaning may be greater than the substance, and the impact on the listing status and transaction of Hong Kong stocks is limited.

On the whole, we believe that the substantial impact of delisting of state-owned enterprises is limited, mainly for the following reasons:

• 1) the main listing place is in Hong Kong.Unlike most Chinese private stocks whose main listing is in the US, most SOEs are listed in Hong Kong and then deposit their Hong Kong-listed shares in the US as ADR, so even delisting from the US does not affect the original listing status of their Hong Kong shares.

• 2) the American depositary shares and transactions are basically negligible.Unlike Chinese private stocks, which are mainly traded in the United States, the depositary shares of the above-mentioned state-owned enterprises in the United States are very small and their transactions are not active.

以$China Life Insurance Company Limited (LFC.US) $For example, according to Bloomberg, its American depositary shares account for only about 0.5 per cent of the company's total shares, with an average daily turnover of about 6.9 per cent over the past 30 days (including A shares, Hong Kong shares and ADR). The ADR of several other companies is also basically less than 1 per cent of the total shares (except Shanghai Petrochemical about 3.2 per cent), so even if delisted from the US, the impact on its transactions and Hong Kong stock market liquidity will be limited.

In fact, CNOOC and the three major telecom operators, which were delisted because of US restricted lists in May and October 2021, have had a relatively limited impact on share prices and transactions. Of course, short-term emotional shocks may be hard to avoid completely.

Indirect impact: the regulatory uncertainty of other US-listed companies remains, and the coming year is a key window.

No matter in terms of listing status or transaction, the direct impact of delisting of the five state-owned enterprises is relatively limited, but it will increase market concerns about the risk of delisting of US-listed Chinese stocks with more major listings.

At present, SEC has listed more than 140 US-listed companies on the "identified list" (Conclusive list of issuers identified under the HFCAA) with potential delisting risks (of which 7 are on the "pre-identified list"), and three times on the list (earnings season in April 2024) will face delisting risk.For these enterprises, since the main listing and main transactions are in the United States, delisting may have a greater impact on their own transactions and the liquidity of Hong Kong stocks.。

Therefore, the direction of Sino-US regulatory cooperation will be the key in the future. Looking ahead, we expect other state-owned enterprises ($China Eastern Airlines Corp Ltd (CEA.US) $And companies that may be involved in confidentiality and data security still do not rule out the potential risk of delisting under the existing regulatory framework. The recent increase in friction between China and the United States in various aspects has also increased the uncertainty of future policies, which is worthy of close attention.

Outlook: return to Hong Kong stocks and become the main listing or become the mainstream choice; short-term or affect the liquidity of Hong Kong stocks, but optimize the structure of Hong Kong stocks and enhance their attractiveness in the long run

External uncertainty will prompt more eligible Chinese stocks to return to Hong Kong.Since the reform of the listing system in 2018, a total of 26 companies have returned to Hong Kong stocks through secondary listings or dual major listings (including 17 secondary listings and 9 major listings).

Looking forward, while the external environment is still facing great variables.We expect that more qualified Chinese companies will return to Hong Kong stocks and adopt or turn to the main listing method will become the mainstream.

At the same time, we believe that the HKEx's continued optimization of its listing system will also facilitate the return and conversion of more US-listed stocks to their major listing status. Based on the current listing conditions, we estimate that there will still be 27 companies eligible for regression.

In terms of way, adopting or turning to the main listing will become the mainstream.

Compared with the secondary listing as the "projection" of the main body of overseas listing, choosing the dual main way of listing back to Hong Kong can make the listing status in Hong Kong not affected by the overseas listing status, and can be included in the scope of Hong Kong stock exchange. In fact, we have noticed that more and more companies, such as XPeng Inc., Li Auto Inc., KE Holdings Inc. and so on, have chosen dual major listings to return to Hong Kong stocks, and companies such as Zai Lab Limited, Bilibili Inc. and BABA have also applied for or completed the transformation from secondary listing to major listing.

We estimate that if the above-mentioned companies turn to major listings and are included in the Shanghai-Hong Kong Stock Connect, they are expected to bring an inflow of HK $45.6 billion.

Impact on Hong Kong stocks: there may be liquidity and emotional disturbance in the short term, but it will help to optimize the structure of Hong Kong stocks and enhance their attractiveness in the long run.。

The return of a large number of US-listed companies and the transfer of shares to Hong Kong stocks will indeed have a certain impact on the liquidity of Hong Kong equity. At present, the proportion of major Chinese-listed companies that have returned to Hong Kong has reached an average of about 20% (such as BABA 20%, JD.com 21%, etc.).

We estimate that the new financing and share conversion transactions of 27 potential returning companies could result in an annual liquidity absorption of HK $26.8 billion (equivalent to 8.8 per cent of the amount raised by IPO on the Hong Kong stock main board in 2021).

However, some companies can ease the pressure by introducing listings (no new financing, such as NIO Inc. and KE Holdings Inc.).

However, in the medium to long term, we believe that the return of more US-listed companies will help to further optimize the structure of the Hong Kong stock market, attract capital precipitation, and then form positive feedback on high-quality companies and funds.

In addition, we expect that Hong Kong stocks may partially replace US stocks as one of the preferred financing places for Chinese innovative enterprises, especially those invested by US dollar funds. this will further consolidate the position of the Hong Kong stock market as a regional financial centre and China's "new economic bridgehead".