Citigroup And UBS Say China ADRs Correction ‘Overdone’ 

Strategists from Citigroup Inc. and UBS Global Wealth Management penned two separate notes this week outlining how Chinese companies’ American depositary receipts (ADR) corrections are “overdone,” and now could be the time to start buying beaten-down names. 

Citi’s Alicia Yap said Didi Global Inc.’s de-listing is “an isolated case” and concerns about de-listings other Chinese ADRs is “overdone.” She said, “the risk of other ADRs de-listing could materialize by 2025.”

“We would view the selloff as a buying opportunity for those big-cap American depositary shares that already have dual-listings in HK,” Yap added.

Last Friday, the Nasdaq Golden Dragon China Index crashed 9% on delisting fears and unease about the Securities and Exchange Commission’s proposed mandate for foreign companies to open their books to US auditors. 

Chinese ADRs are valued near their historic averages over after falling from very extreme rich levels in early 2021.

There’s a big gap between China tech companies and US tech companies. 

A similar view was shared with UBS’ Mark Haefele, who said Chinese ADR correction is “overdone.” He said investors overreacted to Didi’s delisting last week. 

“Investors have overreacted over limited visibility on future policy, fragile risk sentiment, and an imperfect understanding of fungibility,” Haefele said.

Beijing’s years-long crackdown on Chinese technology companies could be dialed back as economic growth slumps. This prompted China’s central bank to announce a RRR cut earlier this week, resulting in a risk-on move into Chinese stocks listed in the U.S. Goldman Sachs believes another RRR cut is slated for 2022 as Beijing attempts to stabilize its economy.

The RRR cut and a second possible one in 2022 signals that Beijing is undoubtedly getting nervous about the growth outlook. This may result in potential dialing back of tech crackdowns. If Citigroup Inc. and UBS are right, a bottom could soon be forming in China tech names that have been severely clubbed over the past year.