An audit agreement signed between the US and China, which reduces the risk of Chinese stocks being delisted from US stock exchanges, should act as a “monumentally loud wake-up call” for investors, says deVere Group CEO Nigel Green.
The China Securities Regulatory Commission and the U.S Public Company Accounting Oversight Board announced that the two nations had come to agreement for inspecting the audit work papers of US listed Chinese companies.
Green says: “This is unambiguously positive news. Although preliminary, the agreement is a major step in the right direction towards more cordial trade relations between the world’s two largest economies. The timing could not have been better either as it comes at a time when the two nations are still trying to heal from the considerable trade rifts imposed during the Trump era.
“Also, at a time when the U.S.-China tensions have been heightened on other matters, including the Russian invasion of Ukraine, China’s human rights record, and the U.S. House Speaker Nancy Pelosi’s recent trip to Taiwan, which China claims as its territory.”
The agreement, which is seeking to bring to an end a decade-long dispute between the two major economies, highlights China’s desire to be a major player in the global trade and financial community, says Green.
“It’s a big nod to globalisation, which is exactly more of what we need right now to help global economic growth and battle the international cost of living crisis. Into an otherwise largely ideological struggle between the US and China, every effort must now be made to harness the power of global trade, not only for economic superiority but for peace where it is threatened around Taiwan,” says Green.
Following forecasts from the Institute of International Finance that as much as $300 billion could exit the country this year as investors shun Chinese stocks, more than double last year’s outflow of $129 billion, Green says the deal could act as a “wake up” call for investors.
Amid concerns about unpredictable regulatory crackdowns, Beijing’s strict zero-Covid policy and China’s real estate sector, Green says investors should take a “zoomed out” perspective on the country if their primary objective is capital growth.
According to Green: “China is transitioning from an export economy to a consumption one that will be more sustainable. As China moves up the value chain, it is directly acquiring more and more foreign brands, market networks and technologies that will further strengthen its position for global investors.
“There’s still enormous potential for growth as its urbanisation strategy is still in its infancy and the scope is massive. Plus, the reform of state-owned companies could blow apart monopolies and create major investment opportunities.
“Under terms of the new agreement, the U.S. inspectors could see complete audit work papers of Chinese companies with no redactions. This is big news for investors. Those who want to build long-term wealth should be less emotionally reactive and keep an open mind on the opportunities in China.”
