U.S. officials from the Public Company Accounting Oversight Board (PCAOB) have purportedly landed in China to meet with Chinese regulators as the two sides seek to find an accord over the delisting of Chinese companies from U.S. exchanges, according to Reuters.
As of this week, the SEC added 80 more Chinese companies to its growing list (currently 128 in total) of those that will be removed from exchanges and trading in the U.S. in 2024 if an agreement is not reached. The expectation is that within the next year, all Chinese companies will end up on the list unless regulators from both sides can reach a consensus that both agree on.
The regulators from the U.S. that are supposedly visiting are currently in quarantine and will begin talks next week. China has made favorable remarks as of late regarding possible resolution and telling select companies that they should start to prepare for an audit. The PCAOB has denied that it has sent members to China.
The key issue at stake is that the Holding Foreign Countries Accountable Act (HFCAA) requires that foreign listed companies allow for audit approval by U.S. regulators, something that China has up until now refused, claiming it would risk national security to do so. Supposedly that sentiment is changing, at least regarding some companies as the China Securities Regulatory Commission’s vice chairman, Fang Xinghai, reported expectations for a deal to be reached within the near future.
“While this is not the first time that officials from the US regulatory body have visited China, this is the first time they have travelled since the CSRC stated its readiness to make key concessions to allow audit reviews by foreign regulators and asked US-listed firms to prepare for more audit disclosures,” writes KraneShares in the China Last Night blog.
See also: China Proposes Changes That Could Prevent U.S. Delisting
Investing in China as Economic Policy Focuses on Easing
For investors that are looking for exposure to China but wish to gain it without the threat of delisting in the U.S., investing in China’s A-shares market could be one option to consider. The A-shares markets have historically only been available to Chinese residents and consist of mainland Chinese companies that trade on the two local Chinese exchanges, the Shenzhen Stock Exchange and the Shanghai Stock Exchange.
The KraneShares Bosera MSCI China A Share ETF (KBA) invests in Chinese A-shares — specifically those from the MSCI China A 50 Connect Index.
“An element of why we’re positive on Chinese A-shares that we hold in our ETF KBA is because of this easing [by China’s central bank]and because of the recognition of this from the primary shareholder of Chinese A-shares, which is investors in China today. Only about 5% of Chinese A-shares are held by foreign investors,” explains Brendan Ahern, CIO of KraneShares, in a webcast in March.
This fund seeks to capture 50 large-cap companies that have the most liquidity and are listed on the Stock Connect while also offering risk management through the futures contracts for eligible A-shares listed on the Stock Connect. The index utilizes a balanced sector weight methodology to give exposure to the breadth of the Chinese economy.
KBA carries an expense ratio of 0.56% with fee waivers that expire on August 1, 2022.
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