(Yicai Global) March 14 -- The selloff in US-listed Chinese companies seemed to be over-done on the two trading days after the US SEC on March 8 named five issuers for possible delisting, according to James Wang, head of UBS’ China Equity Strategy.

Wang suggested that the companies, also called China ADRs, may see recovery from the second quarter this year.

The China ADRs’ share prices slumped 20 percent over March 10 and 11, while MSCI China, the index representing all Chinese shares, only declined 4 percent.

Given much of the regulation news was well-publicized in December last year and with the China ADRs having already declined 18 percent before March 10 this year, the extent of the sell-off was unexpected, he noted.

Weak investor sentiment, subdued macro data and recent earnings downgrades may have also contributed to the decline, Wang suggested.

Moreover, since most large ADR names are dual-listed in New York and Hong Kong, institutional investors have been converting their ADRs into H-shares, which aggravated the sell-off, he added.

However, earnings are expected to recover from the second quarter this year, as Chinese government stimulus starts to take effect and as year-on-year comparables become easier, Wang explained.

The earnings recovery would be supportive for MSCI China, including the ADRs which are now trading at an 8-year low price to earnings ratio, he stated.

The United States Security and Exchange Commission finalized a provisional list on March 8, requiring Yum China Holdings, owner of KFC and Pizza Hut in China, along with cancer treatment developer BeiGene, biotech firm Zai Lab, chip-making equipment manufacturer ACM Research, and drugmaker HutchMed China to provide evidence by March 29 as to why they should not be delisted under the Holding Foreign Companies Accountable Act.

Editor: Peter Thomas