Chinese ADRs Avert Delisting Risk After PCAOB Wraps Up Audit; We See Upside in Selected Stocks

We believe the latest regulatory announcement from the U.S. should help add investor confidence in Chinese ADRs. The Public Company Accounting Oversight Board in the U.S. said on Dec. 15 it had gained full access to inspect and investigate firms in China. Before this, investors feared the Holding Foreign Companies Accountable Act could force hundreds of Chinese companies listed on U.S. exchanges to delist starting as early as 2023. The news should support recent outperformance by Chinese equities following moves to relax coronavirus testing and quarantine policies in China. Although volatility may persist as COVID-19 cases increase in China, we think the combined news presents a floor in terms of risk premium to China equities. While Chinese stocks have rebounded off lows, wide- and narrow moat-rated ADRs such as NetEase, Alibaba, Yum China, and JD.com are still seeing attractive upsides to our fair value estimates.