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What Happens If Alibaba Stock Is Delisted From the U.S. Market?

Buzz about Alibaba's stock being delisted from the U.S. market has investors concerned. Here's what you need to know if BABA delists from the U.S. exchange.

Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Report is back in the spotlight after intense volatility in its share price. The stock recently swung upward after Alibaba's management presented a growth turnaround plan during its recent "Investor Day."

However, since Beijing's latest regulatory clampdowns have pushed Chinese stocks to the point of delisting from the U.S. markets, shares of companies -- including  (BABA) - Get Alibaba Group Holding Ltd. Report, Nio  (NIO) - Get NIO Inc. (China) Report, JD.com  (JD) - Get JD.com Inc. Report, and Baidu  (BIDU) - Get Baidu Inc. Report -- have plummeted in the past few weeks.

If Alibaba -- or any other Chinese company -- delists from the U.S. stock exchanges, this is what you need to know.

The Delisting Scenario

After years of keeping a loose rein on Chinese companies listing on U.S. stock exchanges, Beijing has changed its tune.

Chinese regulators are particularly concerned about the U.S. Securities and Exchange Commission's requirement that listed companies share data with the agency and allow it to conduct audits of their businesses.

Didi  (DIDI) - Get DiDi Global Inc. Report, one of several giant Chinese companies that went public on the U.S. stock market in 2021, filed to delist from the NYSE only six months after its initial public offering (IPO). Its main reason was Chinese regulators' dissatisfaction with the decision to list DIDI in the U.S. without a clear solution to cybersecurity threats and data leaks.

The same could possibly extend to other big Chinese internet companies like Alibaba, JD.com, and Baidu, for example, which have already carried out dual listings on the Hong Kong stock exchange.

It's worth remembering that this scenario is nothing new. The tense regulatory dispute between China and the U.S. has been going on for decades. However, little progress has been made so far to calm the tempers of both sides.

What Happens If a Stock Is Delisted?

When delisted, the stock becomes no longer publicly listed on the stock market. In Alibaba's case, it wouldn't be traded on the New York Stock Exchange (NYSE).

The delisted stock could still be traded over-the-counter (OTC), which means that it trades in a decentralized market.

However, when a stock delists, institutional investors tend to abandon it. It also loses its wide access to buyers, sellers, and intermediaries. That may result in less liquidity and a drop in the company's share price.

Our Take

Not only does Beijing's delisting pressure present a gigantic risk for these companies, but it also poses a huge risk for the Chinese economy itself.

The Chinese economy would likely suffer from a reduction in capital inflow. Closing the doors to foreign capital never tends to be a wise decision. It would send a message that Chinese companies might not be investable.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)