Chinese tech stocks, including Alibaba (NYSE:BABA), JD.com (JD) and Baidu (NASDAQ:BIDU) gave up earlier gains on Friday even as the U.S. and China announcing a preliminary agreement to let U.S. auditors have access to New York-listed Chinese firms.
The announcement, coming from the Securities and Exchange Commission and Public Company Accounting Oversight Board, or PCAOB, is seen as the "first step" towards letting the PCAOB have open access to inspect and investigate Chinese and Hong Kong-headquartered firms in a manner that is "consistent with U.S law."
The preliminary deal is signed off by the Securities and Exchange Commission, the PCAOB, the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China.
Alibaba (BABA) fell almost 2%, while Pinduoduo (NASDAQ:PDD) shares closed with a loss of almost 4%. Baidu (BIDU), JD.com (JD), and NetEase (NASDAQ:NTES) each slipped more than 2% and Bilibili (BILI) fell almost 8% by the close of trading.
The reversal appeared to be attributed to comments from Federal Reserve Chairman Powell, who spoke at the Jackson Hole symposium in Wyoming.
As part of the agreement, the PCAOB has "sole discretion" to select the firms, perform the audits and levy potential violations during its investigation, with no consultation or input from China.
While seen as "significant," the U.S. said the statement of protocol is only a first step. The PCAOB is expecting to have inspectors on the ground by the middle of next month.
On Thursday, it was reported that both sides were nearing an agreement.
Several Chinese companies, including Alibaba (BABA) and Baidu (BIDU) have been added to the list of companies at risk of facing a delisting as a result of the Holding Foreign Companies Accountable Act, or HFCAA.
The HFCAA tasks the PCAOB to determine companies "that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction."
The legislation states that a company would be delisted from a U.S. exchange if it was identified by the SEC for three consecutive years because of the PCAOB's inability to audit it properly.
Hedge fund Bridgewater Associates recently disclosed it had sold off all of its holdings in a handful of Chinese tech stocks, including Alibaba (BABA), JD.com (JD), NetEase (NTES) and Bilibili (BILI), while also making several other changes to its portfolio.