America Is Starting to Closely Regulate Chinese Stocks

May 22, 2020
217 Views

America is home to the most robust capital market in the world, and it’s beginning to close the doors on some Chinese businesses. Significant developments have occurred this week. The NASDAQ introduced new rules that will make it harder for Chinese companies to go public on the exchange. The rules came after Luckin Coffee, a Chinese Stocks traded on the exchange, was found to be falsifying accounting records.

The U.S. Senate is also involved. Lawmakers passed a bill on Wednesday that will prevent Chinese companies from listing on Wall Street if they don’t submit their financial data for verification. There was bipartisan support for the bill, with not a single senator voting against it. In writing the bill, cosponsors said it was designed to “kick deceitful Chinese companies off U.S. exchanges.”

The news doesn’t mean that Chinese stocks will leave American markets. It simply aims to ensure that the stocks that are listed will be closely regulated. This will create trust and transparency, allowing investors to make better decisions surrounding their trades.

A Major Pension Fund Avoids Chinese Stocks

The latest news is closely linked to the announcement last week that the Federal Pension Fund would abandon its plan to invest in Chinese Stocks. The fund has almost $600 billion in assets. The White House had previously warned that investing in Chinese stocks would create a risk to national security.

Political Dispute is Deepening

Before the Coronavirus Pandemic, the U.S. and China seemed to be approaching the end of a long trade war. Now President Trump is threatening to impose new tariffs on China, creating fears that tensions could escalate again.

There is strong sentiment in Washington that China failed to contain the Coronavirus and even took steps to obscure the severity of it. Confirmed cases in the United States have now exceeded 1.6 million, with over 94,000 deaths. Global cases have exceeded 5 million, with over 320,000 deaths.

Should Investors Still Buy Chinese Stocks?

There are several strong Chinese stocks on the U.S. market that investors will find interesting.

Technology and eCommerce company Alibaba (NYSE: BABA) is one of them. The company has strong growth potential and robust financials, making it a target for international investors.

Chinese stocks that are listed on U.S. exchanges will now be subject to increased regulation, so investors can have confidence that the data surrounding these stocks is accurate.

The developments last week and this week are centered around forcing China to play by the same rules as other nations. A fairer stock market will benefit investors at all levels.

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