Chinese technology shares rose for a second day after talks between Beijing and Washington to avoid the delisting of companies in New York was said to show signs of progress.
Hong Kong’s Hang Seng Tech Index climbed as much as 2.1% on Friday before paring gains to close 0.8% higher as it capped its biggest weekly gain in over a month. Firms that have ADRs, such as GDS Holdings Ltd. and AAC Technologies Holdings Inc., were among the best performers.
China regulators have instructed major accounting firms to prepare to bring audit work papers of US-listed Chinese companies to Hong Kong, where they can be reviewed by US officials, according to a person who asked not to be identified as the discussions are private.
Signs of progress in the talks will provide a tailwind for Chinese equities, which have been hit by slowing economic growth, a regulatory crackdown and tensions in the Taiwan Strait. Beijing’s latest stimulus measures have also given stocks a boost, and the Hang Seng Tech Index has climbed over 20% from a March low.
"To see that both sides are communicating, it is a good thing,” said Daisy Li, fund manager at EFG Asset Management. "Still, we will need to see if the US side is actually willing to accept the disclosure. If this can be resolved, it could help lower some China market’s geopolitical risk premium.”
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Even as talks progress, some analysts are already positioning for further gains in Hong Kong stocks. The short squeeze risk for the shares "has not yet fully eased” and there is room for the current short covering-driven rally to continue in near term, according to Morgan Stanley’s strategists.
Cautionary Note
Congress imposed a 2024 deadline for kicking off businesses that don’t comply with US exchange listing rules and investors have remained wary over the fate of about 200 Chinese firms with American Depositary Receipts.
Earlier this month, China Life Insurance Co., PetroChina Co. and China Petroleum & Chemical Corp. all announced plans to delist from US exchanges. Alibaba Group Holdings Ltd. recently said it will seek a primary listing in Hong Kong while ride-hailing giant Didi Global Inc. announced plans in December to delist from the New York Stock Exchange.
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Still, some market watchers remain cautious.
It’s still necessary for US and Chinese leaders to "publicly ink the agreement, which still will be very political and the timing is unclear,” Patrick Springer, managing director of institutional securities at Huatai Securities USA, wrote in a note.
