January 24, 2014 (Chinavestor) We have compiled a graph depicting the effect of the SEC's latest move trying to rein in bookkeeping of Chinese listings on US Exchanges. Basically the SEC ruled that Big Four accounting firms' "sister" firms in China were precluded by PRC laws from sending the SEC the work product of audits for a number of companies the SEC was investigating for malfeasance. Essentially, all of the Big Four China affiliates have been censured and suspended from doing audits for six months.
I believe this was the right move after a large number of Chinese firms have taken advantage of US investors for long years. See our related Newsletters: FOCUS ON QUALITY OF CHINESE STOCKS. We wrote last April that "We took note when the SEC’s offer to audit Chinese companies seeking U.S. listing in China by Chinese authorities, was turned down. Given that corporate governance has long been not considered vanguard in China, this lack of cooperation between the SEC and the Chinese Securities Commission deeply undermined trust in Chinese ADRs. And for a good reason!"
The effects are devastating for Baidu Inc. (NASDAQ:BIDU) and SouFun Holdings (NYSE:SFUN). The rest of the tech sector followed... Sina Corp. (NASDAQ:SINA), NetEase Inc. (NASDAQ:NTES) fell hard... See following chart describing result of Thursday and Friday.