Delisting Bill Will Not Affect the Fundamentals of Most Companies Under Our Coverage

We think China will most likely allow the majority of U.S.-listed Chinese companies to submit their audit working papers to the U.S. regulators. This is because: 1) most of these firms do not possess sensitive data that is subject to national security controls, and 2) the Chinese government seems determined to resolve Public Company Accounting Oversight Board, or PCAOB, auditing challenges. Should there be no deal between China and the U.S. over the Holding Foreign Companies Accountable Act, or HFCAA, we still expect the China internet and consumer companies that we cover to navigate through without value destruction. This is because most of the China internet and consumer companies we cover either have U.S. primary listings and secondary listings in Hong Kong (Alibaba, JD.com, NetEase, Trip.com, Baidu, Weibo and Yum China), or they are primary listed in Hong Kong (Tencent, CMGE, Meituan and Alibaba Health). So even if delisting occurs, investors can convert U.S. shares into Hong Kong shares. While Pinduoduo has yet to list in Hong Kong, it already meets the Hong Kong secondary listing requirement. Therefore, we expect Pinduoduo to apply for a Hong Kong listing if a delisting looms. In our view, it is possible that the cloud businesses of Alibaba and Baidu, and some of their artificial intelligence, or AI, businesses are deemed sensitive by Beijing, as their customers include Chinese state-owned enterprises and the Chinese government. In such a case, we think it is more likely for these three companies to list primarily in Hong Kong and abandon their U.S. listings, as opposed to reducing their stakes in these cloud business to qualify as associate investments or minority investments, given the strong growth potential of the enterprise cloud industry in China. Therefore, the fair value estimates of the China internet and consumer firms we cover remains unchanged.