The US Government is demanding stricter auditing…
Chinese companies will have to start following American accounting practices.
This past May, the US Senate passed a bill that would protect American investors from foreign companies that refuse to cooperate with the Securities and Exchange Commission’s (SEC) oversight. The bill is known as the Holding Foreign Companies Accountable Act.
It will force all foreign companies to follow American accounting and auditing procedures. The main target for this bill is China, as the Chinese government does not allow other countries to audit their business records.
Now, the US House of Representatives have approved the bill. And if President Trump signs this bill, it will become the law.
Where’s the money?
Following this news, many Chinese stocks dropped. For example, NIO Limited (NIO) is trading at $46 at the time of writing, down 3.25% from yesterday. Meanwhile, Li Auto Inc. (LI) is currently trading at $33, down 4%.
But it isn’t all bad news. For example, Chinese retail giant Alibaba (BABA) is up 2.23% on the day. And Chinese e-commerce company, JD.com, is up 1.83%. And other Chinese stocks who took a hit have quickly bounced back.
There’s a good reason why. Even if President Trump signs this bill today, Chinese companies still have three years to comply with American auditing laws. Which means they won’t be going anywhere, anytime soon.
So, when it comes to the Holding Foreign Companies Accountable Act, here’s how it could fatten up your portfolio…
How do I get some?
This newfound volatility in Chinese names is presenting a great opportunity for traders to make money. And if you have positions in Chinese stocks, you shouldn’t sell them all off just yet.
Remember, Chinese companies have three years to comply with US auditing procedures, so there’s simply no reason to panic-sell everything. Even though many stocks have suffered an immediate drop yesterday, Chinese names are still at all-time highs.
For example, Li Auto Inc. (LI) may be down 4% on the day… but the stock is still trading at $33… just $10 shy of its all-time high of $43 – which it hit on November 24, 2020.
Which is why I’m not going to be running away from Chinese stocks anytime soon. In fact, I would wait to see if prices drop even more. Because this would present a buying opportunity to invest in these lucrative Chinese companies – which will still be listed on US stock markets for the next three years.
Regardless of Any New Regulations…
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