Music entertainment group Tencent (TME -6.11%) is down 6.1% by 3 p.m. ET.
What’s the deal with Tencent Music today? Yesterday Tencent conducted what it described as an “introduction” of its shares on the Hong Kong Stock Exchange (SEHK), listing its Class A common stock on the Main Board, where it will be tradable in lots of 100 shares. At the same time, Tencent Music confirmed that its listing on the New York Stock Exchange (NYSE), where a US depository share represents two common shares of Tencent Music, also remains active.
Why might a Hong Kong listing have triggered a sell-off in New York, though?
The most logical answer is that investors who own shares on the NYSE are selling those shares and buying back shares on the SEHK now that this is an option. They would do so with the theory that by moving their holdings to Hong Kong, they can limit the risk of their shares being canceled by the NYSE due to an ongoing dispute between Chinese regulators and the Public Company Accountability Oversight Board (PCAOB). of the United States.
Since Congress passed the Holding Foreign Companies Accountable Act (HFCAA) in 2020, this has been a concern for investors who own Chinese stocks – the risk that unless China and the Securities and Exchange Commission fail to reach a settlement, the latter could require Chinese companies to remove lists from US exchanges due to concerns about their lack of financial transparency. Granted, these concerns were somewhat alleviated when Beijing and Washington reached a compromise last month to allow the PCAOB to inspect the work of Chinese auditors “on the spot” in Hong Kong. But the details on that compromise are still being worked out and investors today seem to be expressing a lack of confidence in the deal.
Considering that, despite having lost 38% of its value in the last year, the Tencent Music shares at 19 P / E are still not selling for That big discount compared to the average S&P 500 shares, limiting the risk of delisting by trading US-listed Tencent Music shares for safer, SEHK-listed shares, seems prudent to me.
Rich Smith has no position in any of the titles mentioned. The Motley Fool has no position in any of the titles mentioned. The Motley Fool has a disclosure policy.