Shares of several Chinese companies trading on US exchanges surged today after US and Chinese financial regulators announced a preliminary agreement in a long-running audit dispute between the two countries.
online education company shares TAL Education Group (bar 9.68%) It’s trading nearly 7.7% higher as of 12:07 PM ET today.Market share of online used car dealers Wooshin (Wooshin 10.79%) Shares of the online tutoring firm traded about 5.2% higher Gaotu Techedu (Okay 11.73%) It trades nearly 10% higher.
Congress created the Public Company Accounting Oversight Board (PCAOB) in 2002 to audit companies listed on U.S. exchanges to protect investors. However, the Chinese government has prevented China- and Hong Kong-based companies trading on US exchanges from complying with these audits, citing data and privacy concerns.
In 2020, Congress passed the Holding Foreign Companies Accountable Act, which states that foreign companies that fail to be audited for three consecutive years may be delisted from U.S. stock exchanges. Earlier this year, to show the seriousness of the problem, the U.S. Securities and Exchange Commission (SEC) began compiling a list of Chinese companies that could soon be delisted.
On Friday, the PCAOB announced deals with the China Securities Regulatory Commission and the People’s Republic of China Ministry of Finance. US auditors will be allowed to travel to Hong Kong to begin audits next month. This represents a major leap forward in an ongoing debate for nearly two decades.
“The real test will be whether the words agreed on paper actually translate into full access,” PCAOB Chair Erica Williams said in a statement. She also said there were “no loopholes or exceptions” in the deal.
Still, it’s certainly a big deal given that Chinese regulators and the PCAOB have been negotiating for months and there have been many questions about whether the deal will materialize. In my opinion, the PCAOB holds up well and doesn’t seem to be willing to concede too much, which makes the deal more meaningful.
Following the news, analysts goldman sachs As a result of the transaction, the company issued a research report that said the chances of Chinese stocks being delisted fell from 95% to 50%.
It’s not entirely clear why some Chinese companies are benefiting from this news more than others today, but with TAL and Gaotu doing well today, China’s online education sector is doing particularly well. seems to be on the move.
The deal between the PCAOB and China’s financial regulators is a big deal for all Chinese stocks traded on US exchanges. I’m also cautiously optimistic that the Chinese government will postpone the end of negotiations, given that rumors about this news have gradually improved throughout the years leading up to the deal.
Additionally, tech companies are a big part of China’s struggling economy these days, and US exchanges provide a good source of liquidity.
Of these three companies, I think TAL Education Group is in the best position for its size. Uxin and Gaotu have much smaller market caps. Uxin received a notice of violation in May because he has been trading for less than $1 since April.
Bram Berkowitz has no positions in any of the mentioned stocks. The Motley Fool invests in and recommends Goldman Sachs. The Motley Fool U.S. Headquarters recommends TAL Education Group and Uxin Ltd. The Motley Fool’s U.S. headquarters has a disclosure policy.