The chairman of the US Securities and Exchange Commission (SEC), Jay Clayton, warned US investors on Wednesday against risking investment into Chinese companies due to ongoing troubles with disclosures by those firms, as they are currently rebalancing portfolios following the market confusion.
The SEC head noted that the regulator and other US authorities are encountering substantial difficulties in taking action against foreign companies for "false" disclosures regarding financial information such as financial reporting and audits.
“This is a time when institutional investors are going through, rebalancing and assessing their portfolios. We are reminding people that when you see disclosures from an emerging market, it may look like a report from a US domestic issuer, but it is not the same kind of investing,” Clayton told Fox Business. “The risks are different and hard to discern”.
Clayton said that the Public Company Accounting Oversight Board (PCAOB), an oversight arm of the SEC responsible for policing accounting firms listed in the US, has been unable to access audits of US-listed Chinese companies from the Chinese government for almost a decade.
According to Reuters, the PCAOB’s problem with Chinese audit quality came to light in 2011 due to suspicions of accounting irregularities in scores of Chinese companies dealing in the US exchange markets.
Auditors for US-listed Chinese companies are reportedly expected to face difficulties in carrying out their work because of travel restrictions related to the ongoing coronavirus (COVID-19) pandemic.
However, the securities regulator’s chief advised US investors and broker dealers to consider “the limitations and other risks”, which may include jurisdictions and companies, when dealing in emerging markets.
Clayton’s warnings came as US lawmakers and some former officials are trying to convince the administration of US President Donald Trump to block plans to invest billions of dollars of federal employee funds in Chinese companies, according to Reuters.