Why delisting from US exchanges is the next big opportunity for Chinese firms
- As US-listed Chinese firms move to Hong Kong, savvy international investors and their money are likely to follow
- The way forward for these firms is to see that providing investors with transparency and accountability is essential to growth and brings many benefits
However, the focus should not be on who will prevail in the dispute between Chinese and American authorities over public company compliance with disclosure standards and financial audits.
Short of achieving a harmonised approach to transnational audit regulation – a sensible thing to do but not likely in the foreseeable future given the political divide – we can expect the dispute to remain unresolved for some time.
Rather, many of the more sophisticated cross-border investors know these companies are good long-term holdings. This is particularly so as they represent sectors with significant growth potential – such as electric vehicles and e-commerce – that promise expansion into new global markets.
As these departing companies list in Hong Kong, the money is likely to follow. When they listed in the United States, investors from Britain and Europe took sizeable positions.
Ultimately, the management of these companies will see that providing investors with transparency and accountability is not just the price of expanding equity participation. It is also central to the corporate growth journey and has numerous long-term benefits for all stakeholders.
This year alone, 37 additional Chinese companies have listed in the US. With each passing day, though, those valuations are dropping.
Many others do not realise how important communications are with foreign shareholders and analysts to help them understand their overarching strategies, let alone earnings misses. Most of these companies do not have a physical presence in the US and instead focus their communications within their home region.
Alibaba – which owns the South China Morning Post – has 44 US financial analysts covering its stock, almost the same number as Amazon and more than Microsoft. That is a lot of eyeballs scrutinising every disclosure, or lack of disclosure, every day of the year.
China, US regulators initiate talks on audit inspection
It is also a lot of questions that management needs to answer or risk paying the price for failing to do so in a clear, consistent way. Wherever a company decides to list in the world, analysts will follow.
As the migration to the Hong Kong exchange builds momentum, many of the more sophisticated global investors – especially those who understand emerging markets – will follow. Their list of questions, and therefore the need for management to revisit the issue of being transparent, will do likewise.
Here again, it means embracing transparency and realising that while governments will always disagree about something, investors and company management can usually find common ground. That is, after all, in the best interests of all concerned.
Montieth Illingworth is CEO and global managing partner at Montieth & Company and co-chairman of Montieth SPRG