Monday was a volatile day for the stock markets, but some stocks across different sectors were hammered black and blue and fell sharply as the day progressed. For example, here’s how some names were doing at 2:20 p.m. ET:
There is a common link between each of these actions: China. And there is a hot stock which also took a hit due to China but for a different reason: You’re here (NASDAQ: TSLA)whose shares were trading down 4% at 2:20 p.m. ET Monday.
The past few months have been difficult for investors in Chinese equities. It started with the China Evergrande Group fiasco and widespread regulatory crackdown on tech companies. Now Chinese stocks listed in the US may be on the verge of delisting.
Shares of foreign companies listed in the United States plunged last year after the United States Securities and Exchange Commission (SEC) tightened scrutiny and authorized the delisting of shares of companies that failed to allow US regulators to audit their books under the Holding Foreign Companies Accountable Act (HFCAA). ) law. Although the rule applies to all foreign stocks, the threat to Chinese stocks is greatest, given Beijing’s disregard for disclosure rules and resistance to a US audit so far.
The SEC has just stoked fears by identifying and warning five companies of possible delisting from US stock exchanges for non-compliance with the HFCAA law. Biopharmaceutical company Hutchmed is on the list, and those companies have until March 29 to submit a response to the SEC.
It is now apparent that shares of Hutchmed fell on Monday. At the same time, it is also easy to see why other Chinese stocks also fell. This is the SEC’s first such listing, and it said it would continue to add names. Investors in Chinese equities, of course, fear that their companies will be next in the SEC’s crosshairs.
Li Auto investors have another reason to fear: lockdowns in China amid rising coronavirus cases. Closures can dampen consumer spending and slow the economy. Therefore, not only will it make it more expensive to manufacture electric vehicles (EVs), but it will also affect the demand for EVs.
In fact, a slowdown is a threat not only to local EV makers like Li Auto, but also to foreign companies with a lot at stake in China, like Tesla. Tesla’s sales in China, indeed, are booming. The Model Y was the top-selling premium SUV in China in February, with retail sales jumping nearly 300% year-on-year. In terms of overall sales of new electric vehicles in China, Tesla was second only to BYD last month.
The threat of delisting is real for foreign stocks, but they also have the option of listing on other exchanges to offer their shareholders an alternative to trading stocks. Chinese People’s Electric Vehicle Company, Nio (NYSE: NIO)for example, began preparing for a secondary listing soon after the HFCAA threat emerged last year and finally debuted on the Hong Kong stock exchange on March 10. Li Auto, by the way, is already listed in Hong Kong, but investors in the United States may continue to sell shares out of fear.
Investors in electric vehicle leader Tesla, on the other hand, may be better off. Of course, any slowdown in China could affect Tesla’s sales, but it could only be a temporary blow to the electric vehicle maker’s otherwise strong growth story.
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Neha Chamaria has no position in the stocks mentioned. The Motley Fool owns and recommends BYD, NIO Inc. and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.