Alibaba‘s shares fell after the US regulators added the stock to a growing list of Chinese firms that might be kicked off Wall Street if US auditors can’t inspect their financial statements. On Friday, Alibaba’s US-listed shares plunged 11% after the Securities and Exchange Commission put it on its watchlist.
In late 2020, Alibaba was caught up in a sweeping crackdown in China on the country’s booming technology sector. The stock has fallen nearly 70% from its all-time high. The crackdown, coupled with a weakening economy, has slowed revenue growth for many tech companies and wiped out billions of dollars from Chinese companies’ market cap.
The SEC can remove a company from the stock exchange if it fails to submit its financial records for three consecutive years, citing concerns over national security. China has rejected US audits of its companies, citing security concerns. It requires companies trading overseas to hold their audit papers in mainland China, where they cannot be examined by foreign agencies. So far, the SEC has added more than 150 companies to its watch list, including Didi, JD.com (JD), Baidu (BIDU), and Yum China Holdings (YUMC). On Monday, Alibaba said it would monitor market developments and “strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”
Last week, Alibaba announced it would seek a primary listing on the Hong Kong stock exchange. “A primary listing status in Hong Kong gives Chinese ADRs (American Depository Shares) an optionality to diversify their listing risk and retain access to the public equity market” if they are forced to leave the United States, said Goldman Sachs analysts in a report last week. Alibaba’s smooth transition of listing status could also “set the path” for many more Chinese ADRs to pursue a similar switch, Citi analysts said separately.