January 27, 2014 (Chinavestor) US listed Chinese stocks have experienced a free fall last week since the SEC barred accounting firms from China to audit books of firms like Baidu Inc. (NASDAQ:BIDU) and Sina Corp. (NASDAQ:SINA). The Chinavestor calculated China ADR Index, measuring the performance of all US listed Chinese stocks, fell 4.6% in two days.And just how steep and unusual this decline was, see the following chart.
The Shanghai Composite, Hang Seng, Dow, and the China ADR Index, last three months
The problem for Chinese ADRs is that some companies won't be able to complete 2013 annual reports on time to meet regulations regarding listing requirements. Important to point out that no all US listed Chinese companies are effected. Smaller cap, low volume stocks that did not use or were unable to use big four auditors are not effected. As a thumb rule, Chinese listings under $250 million in market cap opted out for smaller, less reliable auditors. We remember that most of these companies went bust or sought listings on the pinks after a series of accounting frauds rocked the confidence of US investors. Remember stocks like CBEH, RINO, CEU, just to name a few.
The other set of US listed Chinese companies that won't be as much effected are state owned, large companies with double or triple listings. These include companies like Petrochina Co. Ltd. (NYSE:PTR), China Mobile (NYSE:CHL), Huaneng Power Int. (NYSE:HNP), CNOOC Ltd. (NYSE:CEO), or China Eastern Airlines (NYSE:CEA). Home market for them is either Shanghai or Hong Kong and US ADR prices are driven by prices in Asia. These stocks won't be effected.
The best Chinese listings in the US though, like Baidu Inc. (NASDAQ:BIDU), SouFun Holdings (NASDAQ:SFUN), and Sina Corp. (NASDAQ:SINA) used the services of the Chinese arms of the big four auditing firms. But they can't do it no more because Chinese authorities won't let these firms access all the information required by the SEC. These are the stocks that experienced the meltdown.
Now let's see what sectors suffered the heaviest blows. These are healthcare, technology and services. When it comes to health care, Mindray Medical (NYSE:MR) dived -9.2% followed by WuXi Pharma (NYSE:WX) with a -11.2% free fall. Sinovac Bio (NASDAQ:SVA) fell -11.1%.
Chinese solar listing led technology stocks lower. Trina Solar (NYSE:TSL), Yingli Green Energy ((NYSE:YGE), and Rene Sola (NYSE:SOL) fell -14.1%, -15.1%, and -13.3%, respectively. Jinko Solar (NYSE:JKS), JA Solar (NASDAQ:JASO) and Canadian Solar (NASDAQ:CSIQ) didn't perform any better.
Some of the best tech trading stocks like Baidu Inc. (NASDAQ:BIDU) and Sina Corp. (NASDAQ:SINA) fell -5.2% and -6.7%. Youku Tudou (NYSE:YOKU) experienced the sharpest decline thanks to a -13.3% free fall from this group.
When it comes to the services sector, Melco Crown Entertainment (NASDAQ:MPEL), New Oriental Education (NYSE:EDU), Home Inns & Hotels Management (NASDAQ:HMIN) and 51job Inc. (NASDAQ:JOBS) led the decline. Large cap telecoms, like China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA) slipped a mere -3.2% and -1.1% compared to the double digit decline of those smaller names.
Utilities, in fact it is Huaneng Power (NYSE:HNP) a stock we just explanied why will be resielent to the SEC probe, advanced last week. Aluminum Corp. of China (NYSE:ACH), another triple listed stock, shaked off the SEC probe. It was China Green Agriculture (NYSE:CGA) and China Gerui Advanced Materials (NASDAQ:CHOP) that crashed from the basic materials sector.