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Many investors woke up Thursday morning in shock and disbelief as stocks across the board plunged. The hardest hit were most noticeably Chinese stocks that currently trade on the U.S. markets.

I'm currently long NQ Mobile (NYSE:NQ) and saw that shares briefly touched $16.00 a share during the pre-market hours, resulting in an 11% drop from Wednesday's closing price of $17.98. Luckily shares rebounded and closed up nicely at $17.38 on the day. So what caused the enormous panic and should investors be concerned?

Chinese Manufacturing Data

Things got off on the wrong foot as Chinese manufacturing data came in a lot lower than what most were anticipating. For the first time in six months, China's January PMI contracted, falling to 49.6 from the previous month's level of 50.5. This of course was not the best of news for the world's second-largest economy.

A PMI reading over 50 signals expansion, while a reading under 50 signals contraction. New exports, orders, employment and backlogs all saw declines.

No, the world is not ending as I should note that we are heading into the Chinese New Year or Spring Festival season. This celebration is China's longest festival, which is why February has always been a slowdown period for Chinese companies. That's why it's unclear to see if it's just a seasonal issue, or if growth is really starting to contract.

SEC Judge Suspends Accounting Firms

On top of the disappointing PMI results, Judge Elliot, a U.S. Securities and Exchange Commission judge added insult to injury when he suspended the Big Four accounting firms from auditing in the U.S. for six months.

So what exactly does this mean for investors in Chinese stocks and some U.S. based corporations? Since the Big Four accounting firms account for a lot of work in China, this could lead some Chinese companies listed on U.S. exchanges without an auditor. In a worst-case scenario situation, Chinese companies would have to find a new auditor or else face the threat of an eventual de-listing.

According to the Wall Street Journal, Judge Elliot's ruling does not take effect immediately, and the firms can appeal the ruling. These two things are what investors should focus most of their attention too.

The Big Four accounting firms have already stated that they would appeal the decision. In a joint statement, The four firms called the decision regrettable and said they will continue to serve all their clients without interruption.

So what does all this mean in the short term? Here is what J.P. Morgan China Internet analyst Alex Yao had to say about the situation.

We don't expect the ruling to be disruptive to China ADRs' 2013 annual report audit, which is supposed to be filed with the SEC by 30 Apr 2014. This is because the decision to suspend the four firms is not final or legally effective until it has been fully reviewed and approved by the SEC. We expect the big four audit firms to appeal the review immediately. Before a conclusion is drawn by the SEC, the audit firms can continue to serve all their clients. This means any trading suspension of the China ADRs would not take place until May 2015 at the earliest, in the worst-case scenario.

Yao went on to say that the markets will likely overreact to the headlines in the next few weeks given the historical precedence and boy was he right. Chinese stocks (tech in particular) were hammered as companies such as Baidu (NASDAQ:BIDU), Dangdang (NYSE:DANG), YY (NASDAQ:YY), and Vipshop (NYSE:VIPS) all fell between five and eleven percent on the day.

However, Yao cited that Chinese microblogging provider Sina (NASDAQ:SINA) saw shares drop more than 20% last year after the SEC started a similar case. So what happened to shares after a month later? Yup, you got it, shares of Sina bounced right back.

I expect that most of these stocks that were sharply sold off will rebound and will provide investors a great opportunity to start or add to already existing positions.

NQ Mobile

For those of you that are new to NQ Mobile, the company was labeled as a "massive fraud" by Carson Block of Muddy Waters. However, since that call, many hedge funds and investors have rallied behind the company as shares continue to surge higher with every passing day.

With NQ Mobile's audit results coming back any day now, I've been asked if the recent ruling form Judge Elliot will have a lot of impact on those results. To be honest, I don't know what exactly the market is thinking right now, but I will offer up my opinion.

I don't believe that the recent ruling will have that much of an influence on NQ Mobile's pending audit. The market seemed to agree as shares of the company climbed throughout the day, showing continued strength in a bloodbath market Thursday.

It also helped that rumors of Alibaba teaming up with Qihoo 360 (NYSE:QIHU) was just rumors. According to an article at The Street, Alibaba has no plans to take a stake in Qihoo. When reached for comment, an Alibaba spokesperson said the company had no plans to invest in Qihoo 360, refuting the reports.

Conclusion

Wednesday's stunning announcements sent exchanges all over the world tumbling. Investors also started making the switch into more stable currencies and left currencies alone that are not as stable (emerging markets).

So what is the likelihood that companies like Baidu and its peers will fall off the cliff and go dark? The situation isn't without some risks for sure, but it's my opinion that there will be some kind of resolution that will be resolved either during appeals or that companies will be able to find auditors that can perform their needed tasks.

It is my opinion that yesterday's sell-off was severely overblown with many overreactions. Of course investors can cash in on the volatility as shares are pretty attractive right now, especially Chinese tech stocks.

As always, I'm providing you with my track record and other particular stocks that I recommend. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future.

Disclaimer: Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

Source: Chinese Stocks Slide After U.S. Judge Ruling: Is This A Buying Opportunity For Investors Amidst Overreactions?