China ETFs Drop On Audit Enforcement

China ETFs Drop On Audit Enforcement

The first tranche of Chinese ADRs affected by a 2020 law has been released.

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Reviewed by: Dan Mika
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Edited by: Dan Mika

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  
TickerFundWeight (%)
MSGRDirexion mRNA ETF7.70
CHBGlobal X China Biotech Innovation ETF6.10
CHIHGlobal X MSCI China Health Care ETF5.95
KUREKraneShares MSCI All China Health Care Index ETF3.33
CNCRLoncar Cancer Immunotherapy ETF3.29
Yum China  
TickerFundWeight
CHIQGlobal X MSCI China Consumer Discretionary ETF4.10
KESGKraneShares MSCI China ESG Leaders Index ETF2.61
ECONColumbia Emerging Markets Consumer ETF2.10
MOTIVanEck Morningstar International Moat ETF2.00
AIVLWisdomTree U.S. AI Enhanced Value Fund1.85
Zai Labs  
TickerFundWeight
GERMETFMG Treatments Testing and Advancements ETF3.71
CHBGlobal X China Biotech Innovation ETF3.12
CHIHGlobal X MSCI China Health Care ETF2.66
CHNALoncar China BioPharma ETF1.65
PGJInvesco Golden Dragon China ETF1.51
ACM Research  
TickerFundWeight
XITKSPDR FactSet Innovative Technology ETF1.30
SENTAdvisorShares Alpha DNA Equity Sentiment ETF0.87
JSMLJanus Henderson Small Cap Growth Alpha ETF0.75
FYCFirst Trust Small Cap Growth AlphaDEX Fund0.28
CSFVictoryShares U.S. Discovery Enhanced Volatility Wtd ETF0.08
HUTCHMED  
TickerFundWeight
CHIHGlobal X MSCI China Health Care ETF1.80
CHNALoncar China BioPharma ETF1.76
KUREKraneShares MSCI All China Health Care Index ETF0.80
KESGKraneShares MSCI China ESG Leaders Index ETF0.28
KALLKraneShares MSCI All China Index ETF0.28

 

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

Dan Mika is a reporter for etf.com. He has previously covered business for the Ames Tribune and Cedar Rapids Gazette in Iowa, and BizWest Media in Fort Collins, Colorado. Dan holds a bachelor's degree in journalism from Truman State University.