Credit Suisse recommends reducing exposure to Chinese stocks listed in the US

As regulatory risks increase in China, investors should reduce their exposure to Chinese stocks listed in the United States, according to Jack Siu, chief investment officer for Greater China at Credit Suisse.

“Uncertainties about … regulatory events pose risks to investors over the next 12-18 months,” Siu told CNBC’s “Street Signs Asia” Thursday.

“As a result, we think it is prudent for the holders of these stocks to (…) diversify, hedge their exposure, perhaps switch to some of the stocks listed in Hong Kong where there is a double listing to cover against this risk of radiation, “he added. .

The Chinese ADR market in the United States has come under pressure as investors freaked out over Beijing’s string of restrictive regulations over the past year, which has affected sectors ranging from tech to education and retail. ‘real estate. ADRs are U.S. certificates of deposit, which serve as a proxy for shares of foreign companies listed in the U.S.

Many companies targeted by Chinese regulators have ADR listings in the United States Last week, Chinese rideshare giant Didi announced its decision to withdraw from the New York Stock Exchange and list in Hong Kong instead. .

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There could be other regulatory measures, Siu said. He explained that a Chinese media outlet reported that regulators would require onshore funds to unwind their positions in overseas listed securities over time.

Meanwhile, the U.S. Securities and Exchange Commission has finalized rules that allow the regulator to write off foreign stocks if companies don’t meet audit requirements.

In recent years, an increasing number of Chinese companies listed in the United States have applied for a double listing on the Hong Kong Stock Exchange. They include e-commerce giants Alibaba and, as well as the social media platform Weibo.

Stay cautious on China

Now is not the time to invest heavily in Chinese stocks, Siu said.

The IOC explained that there are still regulatory uncertainties, especially in “strategic sectors” – and this could persist until March of next year.

In addition, analysts have not improved their earnings outlook for Chinese companies and the funds have not returned to the Greater China markets, he said.

“So basically things aren’t getting better for business,” Siu said. He added that investors should stay in sectors supported by Chinese regulators, such as renewables and electric vehicles.

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