ALIBABA, BAIDU, TENCENT, CHINESE STOCKS - DELISTING RISK - Hold, Sell or Buy More Shares?? | Summary and Q&A

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December 13, 2021
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The Intelligent Investor
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ALIBABA, BAIDU, TENCENT, CHINESE STOCKS - DELISTING RISK - Hold, Sell or Buy More Shares??

TL;DR

Chinese stocks face the risk of delisting from the US stock exchange due to regulatory crackdowns and cybersecurity concerns, and investors have three options to consider.

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Key Insights

  • 😀 Chinese stocks face the risk of delisting from the US stock exchange due to regulatory crackdowns and the HFCA.
  • 🩶 The VIE structure used by Chinese companies is a major risk for investors, as it creates a legal grey area and means investors do not directly own the underlying Chinese assets.
  • 🥹 Investors with Chinese stocks can choose to hold and wait, sell and reinvest, or follow the "Charlie Munger way" of being greedy when others are fearful.

Transcript

hello intelligent investors this victor here five months ago i posted this video to talk about the four major risks of investing in chinese stocks i talked about the cyber security review in china the anti-trust crackdowns in china chinese stocks potentially listing in the u.s and the major risk of rebel interest entity vi structure that is used by... Read More

Questions & Answers

Q: Will Chinese stocks such as Alibaba and Tencent be delisted by 2024?

There is a high likelihood of Chinese stocks being delisted due to the HFCA if the PCAOB cannot audit their reports for three consecutive years.

Q: What is the Variable Interest Entity (VIE) structure used by Chinese companies?

VIE structure allows foreign investors to own an offshore entity that has a contractual relationship with the Chinese company, bypassing restrictions on foreign ownership in sensitive industries. However, it poses a risk because investors do not directly own the underlying Chinese company.

Q: What are the three options for investors with Chinese stocks in their portfolios?

The options are to hold and wait for recovery, sell and reinvest in other stocks, or follow the "Charlie Munger way" by buying more shares when others are fearful.

Q: Why did the video creator choose to sell their Chinese stocks?

The creator sold their Chinese stocks to reinvest the capital in other US stocks due to the risks associated with the VIE structure and the uncertainty of Chinese stocks' recovery.

Summary & Key Takeaways

  • Chinese stocks have dropped significantly due to ongoing regulatory risks, including the cybersecurity review, anti-trust crackdowns, and the use of Variable Interest Entity (VIE) structure.

  • The Holding Foreign Companies Accountable Act (HFCA) allows the SEC to potentially delist Chinese companies if the PCAOB cannot audit requested reports for three consecutive years.

  • Investors with Chinese stocks in their portfolios have three options: hold and wait for recovery, sell and reinvest in other stocks, or follow the "Charlie Munger way" by buying more shares when others are fearful.

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