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(Bloomberg) -- Chinese equities may extend gains on Friday after news that regulators were progressing in talks to avoid the delisting of companies in New York gathered momentum.
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The Nasdaq Golden Dragon China Index jumped 6.3% overnight, the most since June, with shares of Alibaba Group Holding Ltd. and JD.com Inc. both gaining at least 8%. China regulators have instructed major accounting firms to prepare to bring audit work papers of US-listed Chinese companies to Hong Kong, where they can be reviewed by US officials, according to a person familiar.
Congress imposed a 2024 deadline for kicking off businesses that don’t comply with US exchange listing rules and investors have remained wary over the fate of the more than 200 Chinese firms with American Depositary Receipts. The conversations, which remain ongoing, may result in a positive step forward in the years-long standoff.
“This is a fascinating development,” said Ed Moya, senior market analyst at Oanda Corp. “An official confirmation is needed but expectations were growing that this would get done as both countries are dealing with economic fragility,” he added.
Read more: US-China Talks on Delistings Advance With Hong Kong Inspections
Concern that an audit dispute may trigger a mass, forced exit of Chinese names from US markets has weighed on the shares for more than a year. Earlier this month, China Life Insurance Co., PetroChina Co. and China Petroleum & Chemical Corp. were among a group of state-owned companies that announced plans to delist from American exchanges.
As a result, the prospect of a resolution is a boon for embattled Chinese stocks.
The rally in US trading followed what was the best day in nearly four months for Hong Kong’s Hang Seng Tech Index, which rose 6% on Thursday. It helped lead the city’s benchmark Hang Seng Index to a 3.6% gain, making it the best performer among Asia’s major equity gauges.
In addition to the Chinese government’s 1 trillion yuan ($146 billion) of support for the economy, traders cited short covering and an adjustment of positions ahead of Jackson Hole.
“Whether or not the rumor on an audit deal is true, Hong Kong shorts have pressed their bets in a light summer tape,” said Brendan Ahern, chief investment officer at Krane Fund Advisors LLC. “We have been setting up for an epic short squeeze that is contributing to today’s move.”