How Nio Stock’s Dual Listing Act as a Hedge

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It is old news that the U.S. listed Chinese ADRs (American depositary receipt) including NIO (NYSE:NIO) stock to face a potential delisting stateside. The story is simple, submit to the same standard audit that U.S.-based companies face in order to remain on US exchanges or face delisting. 

In my mind, if NIO or any other Chinese stock is delisted from a U.S. exchange it’s a big knock on the stock itself. 

So, I find it a bit strange that any potential delisting can be spun as anything other than a big negative. However, I was reading a piece of commentary which noted that NIO is on a list of 80 Chinese companies that the SEC has compiled for a potential cull.

The news that NIO found itself on the list led to a substantial drop in stock price. That seems logical enough: Investors should be seriously worried that the company may have legitimate compliance issues.

That makes it very difficult to rely on the fundamental figures that we do have regarding the company because they simply haven’t been audited.

What I take issue with is a follow-on idea in the article which states that if NIO lists on the Singapore Exchange, that will act as a hedge against any negativity that the U.S. delisting news entails. 

That article quoted Morgan Stanley (NYSE:MS) analyst Tim Hsiao as having the belief that a listing is “likely to alleviate investor concerns.”

I fundamentally disagree with that idea. If NIO is listed on the Singapore Exchange that does little to alleviate any fears about a delisting on U.S. exchanges.

In fact, I think it would legitimately arouse fears that NIO has been hiding something all along. U.S. investors would be left feeling that they were some sort of cash cow for the company in its early days.

All of that capital would flee back to Asia and be trading in Hong Kong and Singapore. 

That’s why my conclusion is that this news is nothing but negative.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.