Chinese Stocks in the U.S. Surge as Delisting Worries Ease

(Bloomberg) -- U.S.-listed Chinese stocks rallied on Friday after a Bloomberg News report that Beijing is preparing to give U.S. regulators full access to auditing reports for a majority of the 200-plus companies listed in New York as soon as mid-this year.

Didi Global Inc. led the advance in American depository receipts, rising 13%. E-commerce giant Alibaba Group Holding Ltd. climbed 1.3%, while JD.com Inc. gained 2.1% and Baidu Inc. jumped 6.6%. The Nasdaq Golden Dragon China Index rose 4.7%, just a day after locking in its worst start to a year since 2008.

READ: China Weighs Giving U.S. Full Access to Audits of Most Firms

“It's a big game-changer,” said Matt Maley, chief market strategist at Miller Tabak + Co., cautioning that Chinese authorities will need to allow access. “It will cause a lot of bearish investors to reconsider their stance that China is ‘uninvestable.'”

China Securities Regulatory Commission and other national regulators are in the process of drafting a framework that will allow most Chinese companies to keep their listings, according to people familiar with the matter. Details are still under discussion and may change, the people said.

Such a plan could potentially alleviate concerns that the U.S. is moving closer to delisting Chinese companies, since the Securities and Exchange Commission started publishing a provisional list of firms running foul of requirements in early March. Baidu, Futu Holdings Ltd. and iQIYI Inc. were among five additions to SEC's delisting watch list this week.

SEC Chair Gary Gensler said on Wednesday that Chinese authorities could face a “hard set of choices” to avoid security delistings, continuing to play down expectations of an imminent resolution to the audit dispute.

READ: How U.S. Is Moving Closer to Delisting Chinese Firms: QuickTake

For investors, Friday's report is just the latest twist in what has been a roller-coaster ride to begin the year. Realized volatility for the Nasdaq Golden Dragon China Index over the last 30 days has soared to its highest on record, surpassing its prior peak seen during the global financial crisis.

The gauge -- which tracks firms on American exchanges that conduct a majority of their business in China -- has surged about 43% from its lowest close in more than eight years last month. Still, U.S.-listed Chinese stocks may not be in the clear just yet.

“The probability of delisting has declined, which is why you see the stocks rebound,” according to Brendan Ahern, chief investment officer at Krane Funds Advisors LLC. That said, “the names won't fully rebound until definitive resolution is found.”