Chinese stocks have seen the highest highs and lowest lows in recent weeks. While the country experienced the first economic shocks from the new coronavirus that emerged in Wuhan, China’s aggressive containment strategy allowed the country to reopen in recent weeks. sending shares at least temporarily to multi-year highs,
However, these bold numbers are not always what they seem. Numerous scandals in recent weeks have raised serious questions about the status of accounting practices in China and whether the stock exchanges are making enough money to protect investors from fraud and scandal.
The most famous story in recent weeks has been the fall Luckin coffee who announced that he could inflated sales of hundreds of millions of dollarsThe company has since then fired his CEO and COOand declined in price on the Nasdaq by almost 91% from its peak in mid-January. The company said in a statement to the SEC that it delayed the publication of its financial data due to COVID-19 (and possibly also a fraud investigation).
The quieter scandal was similar violations in accounting in the TAL Education GroupA Chinese tutoring company is also trading on Nasdaq. And then, Muddy Waters, the same research firm that first identified potential fraud at Luckin Coffee, released a new GSX Techedu report indicating potential fraud, charges dismissed by an educational companyIn a report by Muddy Waters, nearly 70% of GSX students are “bots,” and the company greatly exaggerates its financials.
Given all these contradictions, it seems Nasdaq ready to maintain its standards and protect its market for investors.
In new applications with SECNasdaq has proposed amendments to its rule to tighten listing standards for companies in jurisdictions “that have secrecy laws, blocking laws, national security laws or other laws or regulations restricting access to information by company regulators,” registered in the USA. ” Although the rules will apply equally to all countries with information restrictions, the context clearly indicates that China is its biggest goal. The new rules will require raising financial lows and standards of accountability in order to qualify for listing.
Also, Reuters reports that Nasdaq has sent a notification to Luckin Coffee that he intends to exclude the company’s ADR shares from the exchange. The Nasdaq press service did not respond to requests for comment on the news.
Stricter Nasdaq rules are ultimately positive, as strong and transparent markets are ultimately prompting more and more investors to place their money with companies.
This was not the only positive news for the shares of Chinese companies. The Hang Seng Index, which is Hong Kong’s most important financial barometer, consider adding companies with double-class voting structures, as well as stocks located in markets outside Hong KongAlthough some investors are always dissatisfied with these corporate governance structures, in recent years, American exchanges have largely joined these models, and many technological IPOs today have dual-class voting structures.
Opening the Hang Seng Index for more locations is and remains challenging. For example, Alibaba is trading on Nasdaq, but held another IPO at the end of last year in Hong Kong, which became the largest IPO of 2019Uber with $ 11.2 billion in funds. For some technology companies with global interests, the use of several global stock markets is the key to gaining access to the most liquid and market depth.
Adding non-Hong Kong stocks to Hong Kong’s most important stock index in some way reflects inclusion of Chinese stocks in popular MSCI emerging ETFs in mid-2018Even when the world sets more financial boundariesCompanies and their stocks are becoming more global, and indices follow along with them.
Better accountability and greater access make this day good news for Chinese stocks. Besides, Last week, Luckin Coffee announced it was introducing new products for life.So this can quickly solve the whole damn thing, right?