While all eyes are on the Russia-Ukraine border, the ongoing rout in Chinese stocks has passed under the radar for many investors. Chinese tech companies in particular, have had a torrid 2022 with ETFs tracking the Life Sciences sector falling an average of -26% this year, and -6.5% this week. ETFs tracking the China Digitalization theme has followed a similar trajectory, falling -23.7% this year and -8.7% this week. Chinese companies have been battered by increasing regulatory risk at home and abroad, rising commodity prices and new CoronaVirus outbreaks.
From a regulatory perspective, Chinese companies are facing the twin complexities of forced delistings from Wall Street and difficulties meeting the more stringent listing requirements in Hong Kong and Singapore. The SEC recently announced that 5 Chinese companies (Yum China Holdings, ACM Research, BeiGene, Zai Lab and Hutchmed) would be delisted if they could not produce audit documents to support their financial results.
Policymakers and regulators are calling for closer scrutiny of Chinese companies listing in the US while Beijing has engaged in a crackdown on offshore-listed technology companies who are viewed as potential risks to national security.
The Invesco Golden Dragon China ETF (PGJ) fell 8.8% over the week and is down more than 26% YTD. The Global X China Biotech Innovation ETF (CHB) also fell 8.8% this week, the KraneShares CSI China Internet ETF (KWEB) fell by 8.7% this week (-24% YTD) and saw nearly $240 million of outflows. Other significant losers include the Global X China Materials ETF (CHIM) which dropped 8% and the iShares China Large Cap ETF (FXI/ISQM) which dropped 7.7%.
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