On Saturday evening, the China Securities Regulatory Commission (CSRC), China’s SEC, issued a “Notice of Public Comment on the” Provisions for Enhancing Privacy and Records Management Work Related to the issuance and overseas listing of securities by domestic firms.” The post was followed by a Q&A with the CSRC, which included the clarification that the proposed rule change removes language that states On-site inspections should only be conducted by Chinese regulatory agencies.The proposed rule change would allow Chinese companies listed in the United States to have on-site inspections of their auditors conducted by the U.S. Public Company Accounting Oversight Board (PCAOB) , allowing them to comply with the Holding Foreign Companies Accountable Act (HFCAA).
The notice was issued not only by the CSRC, but also by the Ministry of Finance and State Secret Administration. As noted earlier, allowing HFCAA compliance would require a change in Chinese law. Here we are! Mainland China is on a four-day weekend, although regulators released it on Saturday, showing the importance of the release.
The questions and answers state that the revision “…will also help competent regulatory authorities and foreign regulatory agencies to conduct cross-border regulatory cooperation activities in a safe and efficient manner, including joint inspections, and to jointly protect the rights and interests of global investors”. The weekend announcement does not solve the problem because it takes two to dance, i.e. the US side wants proof that on-site audits can indeed take place. The release decreases the probability of delisting, although it does not reduce that probability to zero. Hopefully, both parties can resolve this issue, which would eliminate a risk for US and global investors. It should be noted that this news did not receive significant attention from Western financial media.
Shanghai’s 25 million residents will be tested for covid-19 as the city grapples with a major outbreak. Overnight, three new covid vaccines were approved by the State Drug Administration, two of which are mRNA vaccines, believed to be more effective. An effective mRNA vaccine would allow a move away from the draconian containment policy, to the benefit of consumer sentiment.
The best performing sector in Hong Kong today was Real Estate, which gained +7.66%, ahead of Healthcare, which gained +5.42%, and the heavy-drinking Consumer Discretionary sector. Internet, which gained +4.59%, and communication, which gained +3.49%. . The catalyst was Evergrande’s statement that she had returned to work on 95% of her projects. Real estate was included in Vice Premier Liu He’s statement on March 16and focusing on risk management in the sector. The market seems to believe that more support for the sector is on the way.
Asian stock markets advanced with Hong Kong and India outperforming while China, Taiwan and Pakistan were on vacation. Hong Kong and China are both absent tomorrow, so there will be no China Last Night tomorrow.
The Hang Seng Index gained +2.1%, while the Hang Seng Tech Index gained +5.43%, driven by internet stocks. Volumes were +8% higher than Friday, but only 69% of the 1-year average as Southbound Stock Connect was closed today. The magnitude was strong with 422 advances and only 62 declines, with consumer staples representing the only sector to decline. Real estate was the best performer, gaining +7.66%, followed by healthcare, which gained +5.42%, and the internet-heavy consumer discretionary sector, which gained +4, 59%, and communication services, which gained +3.49%. EV names were positive on March delivery data and BYD’s announcement that it will stop making non-EVs.
Shanghai, Shenzhen and the STAR Board of Directors were closed today.
Last night’s exchange rates, prices and yields
The mainland’s bond, currency and commodity markets were shut down overnight.