Since the beginning of 2022, US-listed China Concept Stocks accelerated their path back to the Hong Kong stock market.
In 2020, the United States released the 'Holding Foreign Companies Accountable Act,' and over 80 US-listed Chinese companies that block audit inspections by U.S. regulators have been warned to be delisted after three years of non-compliance, beginning in 2021. Under pressure, Chinese companies set a wave of return emigration to the Hong Kong market. Since the beginning of 2022, US-listed China Concept Stocks accelerated their path back to the Hong Kong stock market. Even in the past 20 days, four US-listed China Concept Stocks appeared in the listing calendar of the Hong Kong stock market (OCFT, TUYA, NOAH, MNSO).
According to our research, there are different ways for US-listed China Concept companies to return to Hong Kong stocks, including privatization and delisting, dual-listing, and dual primary listing. Due to the advantages of more likely meeting multiple markets' regulations and being more easily accepted by international investors, although it is more time-consuming and costly, dual primary listing has increasingly become the first choice for US-listed China Concept Stocks to return to Hong Kong.
In January 2022, according to CICC data and our analysis, 42 US-listed Chinese companies have met or will meet the conditions for returning to Hong Kong stocks for dual-listing in the next three to five years, of which 29 companies have met the requirements by July 2022. We expect the new-raised funding of these companies will reach HKD 90 billion in the next three years.
In the past 20 years, emerging sector companies focusing on the Internet, education, and sci-tech have been the typical characteristics of US-listed China concept stocks. The US-listed China Concept Stocks are concentrated in two emerging sectors, consumer discretionary and information technology. Consumer discretionary companies account for 58% of the total market value, and information technology and telecommunications services account for 13% and 7%, respectively, given their market cap. We noticed that emerging-sector companies (Consumer Staples, Consumer Discretionary, Healthcare, Communication Services, and Information Tech) accounted for 87% of US-listed China Concept Stocks, significantly higher than 67% and 45% of the Hong Kong stock market and A-share market. The return of these companies to the Hong Kong market, we believe, will drive to enhance the attractiveness of the Hong Kong stock market to global funds, especially funds from mainland China, which may be bullish news for the entire Chinese market.
In recent years, the Hong Kong stock exchange has been continuously revising its listing rules to create favorable conditions for the return of high-quality China Concept Stocks. In 2018, the Hong Kong Stock Exchange launched the most significant reform of the listing system, simplified the listing process of overseas issuers, allowed companies with weighted voting rights (WVR) to list, and reduced the listing requirements. At the same time, there are rumors that the Hong Kong stock exchange is preparing to liberalize the requirements for unprofitable technology enterprises further to list in Hong Kong, which will enable the Hong Kong stock exchange to attract more high-quality listing resources with potential. We believe all of these will help consolidate Hong Kong's position as an international financial center and increase the variety of listed companies from mainland China.
Of course, all investors should realize that returning to the Hong Kong market is a distant second-best to being listed in the U.S. Compared with the stocks listed in the United States, the stocks listed in Hong Kong have the characteristics of low liquidity and lower valuation, bringing higher risks and less profitability. Therefore, we believe that, at present, China and the United States need to build a mutually beneficial cross-border listing agreement to ensure that global capital can still invest in Chinese companies with potential in the future. We believe that the most crucial thing in this process is to clear up misunderstandings on cross-border regulatory cooperation between China and the U.S. The American public company Accounting Oversight Board reviews the audit working papers rather than the books of listed companies.
If you want to learn more about trends of US-listed China Concept Stocks, join us in Manhattan on July 29-30, WIM (World Innovators Meet 2022) and we will hold a keynote, "The State of U.S-China Relations Today". We invited Craig Allen, chairman of the U.S China Business Council, to our event to share his thoughts about U.S-China relations. Meanwhile, you could interact with like-minded business leaders, investors, scholars, and international relations experts on the key issues and opportunities facing U.S-China business collaboration and investments.
Over the course of 2 days, hear from speakers on the past, present, and future of innovation and exchange between China and the world–from trends in Blockchain, IoT, AI, 5G, Biotech and Fintech for 10 sessions, and network with 175 attendees representing top institutional investors, venture funds, and investment firms.