China ETFs Drop On Audit Enforcement

March 11, 2022

ETFs that track China are dipping after U.S. regulators started implementing a 2020 law that could potentially lead to a full removal of Chinese companies listing on American exchanges within several years. 

The SEC on Thursday named the first five Chinese companies deemed to be in violation of the Holding Foreign Companies Accountable Act, which targets Chinese companies with American depositary receipts (ADRs) deemed by the Public Company Accounting Oversight Board to not be in full compliance with U.S. laws. The companies would be delisted if they do not provide U.S. regulators three straight years of auditing after being designated in violation of the law. 

China does not allow its domiciled accounting firms from submitting to submit to audits from foreign regulators on national security grounds. If that policy is not reversed, every Chinese company using ADRs to trade on the U.S. market could be delisted in the next several years. However, U.S. investors can still get exposure to those companies through Hong Kong-listed stocks. 

The release of the list set in motion a broader sell-off in Chinese ETFs, with the benchmark iShares MSCI China ETF (MCHI) falling 4.35% on Thursday. 

The first five companies hit by the law are biotechnology firms Zai Lab, BeiGene and Hutchmed, along with semiconductor cleaner ACM Research and Yum China, the spinoff of the American holding company for KFC, Taco Bell, Pizza Hut and other fast food chains. 

 

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

 

The stocks combined make appearances in 255 U.S.-listed ETFs and carry just more than over $1.34 billion in market value, according to FactSet data. 

 

Top 5 ETFs By Weight Among HFCAA-Targeted Companies
BeiGene    
Ticker Fund Weight (%)
MSGR Direxion mRNA ETF 7.70
CHB Global X China Biotech Innovation ETF 6.10
CHIH Global X MSCI China Health Care ETF 5.95
KURE KraneShares MSCI All China Health Care Index ETF 3.33
CNCR Loncar Cancer Immunotherapy ETF 3.29
Yum China    
Ticker Fund Weight
CHIQ Global X MSCI China Consumer Discretionary ETF 4.10
KESG KraneShares MSCI China ESG Leaders Index ETF 2.61
ECON Columbia Emerging Markets Consumer ETF 2.10
MOTI VanEck Morningstar International Moat ETF 2.00
AIVL WisdomTree U.S. AI Enhanced Value Fund 1.85
Zai Labs    
Ticker Fund Weight
GERM ETFMG Treatments Testing and Advancements ETF 3.71
CHB Global X China Biotech Innovation ETF 3.12
CHIH Global X MSCI China Health Care ETF 2.66
CHNA Loncar China BioPharma ETF 1.65
PGJ Invesco Golden Dragon China ETF 1.51
ACM Research    
Ticker Fund Weight
XITK SPDR FactSet Innovative Technology ETF 1.30
SENT AdvisorShares Alpha DNA Equity Sentiment ETF 0.87
JSML Janus Henderson Small Cap Growth Alpha ETF 0.75
FYC First Trust Small Cap Growth AlphaDEX Fund 0.28
CSF VictoryShares U.S. Discovery Enhanced Volatility Wtd ETF 0.08
HUTCHMED    
Ticker Fund Weight
CHIH Global X MSCI China Health Care ETF 1.80
CHNA Loncar China BioPharma ETF 1.76
KURE KraneShares MSCI All China Health Care Index ETF 0.80
KESG KraneShares MSCI China ESG Leaders Index ETF 0.28
KALL KraneShares MSCI All China Index ETF 0.28

 

Contact Dan Mika at [email protected], and follow him on Twitter 

Find your next ETF

Reset All