Daily Brief: The US Can Finally Vet Chinese Companies

Daily Brief: The US Can Finally Vet Chinese Companies

over 1 year ago3 mins

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The US and China reached a landmark deal on Friday, which could avoid the delisting of US-listed Chinese stocks.

What does this mean?

China and Hong Kong are the only jurisdictions in the world that block US regulators from inspecting their companies’ account audits, citing national security and confidentiality concerns. That means regulators can’t vouch that some US-listed businesses comply with things like accounting rules, which became a sticking point in 2020 when the US passed a law saying those firms could be booted from American exchanges. The law put about 200 companies at risk, but some weren't going to wait around: five state-owned firms said this month that they’d voluntarily leave before they were kicked off.

There’s nothing like a threat to get decisions made: Washington and Beijing finally made a deal on Friday that means US regulators can review audit documents of Chinese businesses that trade in the US. Regulators have jumped at the chance, and plan to have inspectors on the ground as soon as the middle of next month.

US-listed China stocks rally

Why should I care?

For markets: It’s good to be open.

The agreement was welcome news for US-listed Chinese companies: they’ve seen their stocks fall recently, but news of the agreement has made it less likely that big investors will be forced to sell their shares ahead of a delisting. That might just be why an index tracking some of the biggest US-listed Chinese companies rose by its most since June on Friday.

Zooming out: No pain, no gain.

US stocks didn’t have quite the same fortune: the Federal Reserve’s chairman said on Friday that it would keep “forcefully” attacking inflation with higher interest rates, which sent the US stock market down over 2%. The country’s central bank admitted those rates would likely cause “some pain” to the economy too, but said it wouldn’t be swayed by even a couple months’ worth of promising inflation data.

US stocks fall

Keep reading for our next story...

OpenText Cracks Out The Check Book

OpenText image

OpenText – one of Canada’s biggest software makers – agreed to buy UK rival Micro Focus late last week, in an eye-watering deal worth around $6 billion.

What does this mean?

OpenText has made a series of acquisitions in the last few years as part of a broader growth strategy, and Micro Focus – which provides the majority of Fortune 500 companies with everything from cybersecurity to IT management software – has been on its radar for a while. And now was as good a time as any to pounce: Micro Focus’s stock has dropped 39% in the last year, down to a combination of its lackluster growth and a dip in the tech sector.

OpenText, then, agreed to buy the company for around £5 ($6) a share – almost twice what they were worth before the deal was announced. It’s confident that it can accelerate the company’s transition to cloud-based operations, and use its scale to grow into an even bigger fish in the business information management space. The deal will make OpenText one of the world’s biggest software and cloud businesses, and it’s expecting the deal to save it around $400 million in costs too.

Why should I care?

For markets: Investors are back on board.

The deal could still be blocked by Micro Focus’s shareholders, but it’s unlikely: they’ve watched its revenue fall every year since 2018, which means this is probably the best bet for both the company itself and for their returns. That might be why investors sent it up 93% after the news – Micro Focus’s biggest intraday jump on record.

Micro Focus stock
Source: Google Finance

Zooming out: Ooh la la.

UK tech groups seem to be in high demand at the moment: French conglomerate Schneider Electric said last week it’s thinking about buying up the rest of industrial software developer Aveva. If it goes ahead, it’ll be one of the biggest French-British deals in the last few months, second only to satellite operator Eutelsat’s merger with OneWeb.

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