Key News

Asian equities followed US equities higher overnight on hopes for a peaceful resolution to the Ukraine crisis as oil prices plummeted. Worth noting that markets are quickly curbing their enthusiasm in European trading as US equity futures are pointing south.

This morning the SEC identified five US-listed ADRs including Yum China (YUMC US) and biotech company Beigene (BGNE US) for failing to comply with the Holding Foreign Companies Accountable Act (HFCAA). HFCAA would delist US-listed ADRs in 2024 for failing to allow the PCAOB access to their audit reviews. HFCAA was passed by US politicians to “punish” China though Chinese investors don’t own the stocks as they are held by US investors! The irony is the companies were allowed to list despite the full knowledge of their inability to adhere to the PCAOB audit review. It is very likely legislation to shorten the window from 2024 to 2023 will be signed into law this year.

Why were these five companies identified? Not sure though a slow release of names would be unfortunate versus just pulling the band-aid. We are transitioning out of our US China ADRs into their HK share classes by converting from the US shares to the Hong Kong shares. We recommend you do the same. Yes a solution might avail itself but as stewards of our investors’ capital we aren’t going to take that chance.

There Are Other Factors Causing Broad Equity Weakness:

• Fading optimism on Ukraine truce is weighing on global equities
• Hong Kong shares didn’t rise as much as the US yesterday
• Three ADRs reported earnings including JD.com. JD.com’s results beat analyst expectations though GMV and the number of users missed. The market’s JD.com reaction is unexplainable to me.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.32 versus 6.32 yesterday
• CNY/EUR 6.98 versus 6.93 yesterday
• Yield on 10-Year China Government Bond 2.85% versus 2.84% yesterday
• Yield on 10-Year China Development Bank Bond 3.13% versus 3.12% yesterday
• Copper Price -1.24% overnight