The biggest vanishing act in financial history is being attempted — making 248+ Chinese stocks listed on the US exchange disappear. But US investors won’t be clapping after the trick — the only things being clapped will be Chinese stocks, and US investors.

What’s the big deal? For the past 8 months, the story around Chinese stocks centered on the Chinese government cracking down on tech stocks — and a financial cold war between US/China.

• Chinese stocks are down big given recent developments, with tensions between US/China growing.
• Many Chinese companies paused their US IPO plans — including Bytedance (TikTok) among many others.

Morgan Stanley sees Chinese anti-trust regulations going much deeper and lasting longer than many anticipate. The US is also being pressured to do more to protect US investors:

• Historically, the Chinese government prevented Chinese companies from providing information in compliance with US auditing standards.
• A new rule enforced last year threatens the delisting of Chinese companies if they fail to comply within 3 years.

After recent blowups, the US government is under pressure to enforce these rules. But China has refused to let its companies cooperate — meaning in a few years, hundreds of Chinese stocks are at risk of vanishing from the US.

What happens then? A company’s stock price could plummet if they were to delist — according to Harvard Law School professor, Jesse Fried (via Barrons).

• In Jan, China Mobile was forced to delist from the NYSE. According to Barrons, some retail investors are still unable to sell their shares.
• In some cases — stocks may move to the over-the-counter (OTC) exchange at a discount — giving investors an immediate loss upon delisting.

Running for the hills: Even Cathie Wood, known for holding higher-risk companies, reduced holdings of Chinese stocks in Ark’s portfolio from 8% to 1%.

While the growth potential of the Chinese market is obvious, navigating Chinese stocks just got more complicated. Investors: try not to lose an arm figuring this trick out.