News

The recent upheaval in the stock market has drawn considerable attention, particularly due to a startling incident involving Berkshire Hathaway, the conglomerate led by the legendary investor Warren Buffett. Just days ago, the stock of Berkshire Hathaway A experienced a staggering drop, plummeting by 99.97%. However, this incident was not as it seemed. The New York Stock Exchange swiftly declared that transactions involving the purchase of that stock at such a low price were invalid. This apparent drop was merely a phantom event, unlike the genuine declines experienced by certain other stocks in the market.

Three companies, namely Yancheng Group, Carbon Yuan, and Tongda Group, found themselves immersed in the quagmire of delisting as they entered the "delisting transition period." As fate would have it, these stocks witnessed dramatic declines just as they were officially categorized as "delisting candidates." Yancheng Group exhibited a staggering intraday drop of 98.68%, closing with a 96.55% decline. Meanwhile, Carbon Yuan and Tongda Group fared little better, with their stocks collapsing by 83.33% and 78.82%, respectively.

Advertisement

The swift descent of these stocks serves as a stark reminder of the concept of stock value returning to its rightful place. Even though temporary trading halts occurred twice during these alarming fluctuations, it became clear that such measures failed to alter the downward trajectory of the stock prices.

Analyzing the reasons behind the delisting of these stocks reveals a pattern primarily stemming from the failure to meet financial reporting standards for two consecutive years. Following the unfortunate fate of the three delisted companies, two more—*ST Zhongqi and *ST Xinfang—entered the same transition period on June 6. The former encountered risks due to receiving a non-standard audit opinion on its financial statements, while the latter faced a dual risk rooted in negative net assets and the same non-standard audit opinion.

By the end of May, over 100 publicly listed companies had received risk warnings in the A-share market. This trend suggests that new delisting regulations may lead to a more normalized approach to removing companies from the exchange. Analysts predict that, given the recent delisting enforcement, the number of companies facing delisting this year could soar.

Investors must remain vigilant and be aware of several potential triggers that could result in stocks facing delisting risks. The first scenario involves "par value delisting," which occurs when a company's stock price closes below its face value for 20 consecutive trading days. This significantly raises the risk of delisting regardless of other factors.

The second scenario pertains to financial metrics; the most common red flags include having negative net assets or reporting negative profits alongside revenue that fails to surpass 100 million yuan in the most recent fiscal year.

The third risk arises from market capitalization delisting, which can occur if a company's closing market value falls below 300 million yuan for 20 consecutive trading days. This financial threshold acts as a crucial barrier that, if breached, invites delisting consideration.

Lastly, audit reports that trigger non-standard audit opinions can also serve as ample grounds for a company's shares to be delisted. Factors such as prolonged disputes over company control or substantial misappropriation of funds by major stakeholders could contribute to delisting, as could ongoing investigations conducted by the China Securities Regulatory Commission (CSRC). Investors are advised to steer clear of companies under such scrutiny to mitigate the risk of encountering unforeseen investment losses.

This evolving landscape underscores a broader issue: as the conditions for delisting become increasingly varied, the overall delisting rate within the stock market is likely to rise significantly. For investors, this means identifying and avoiding companies within these risky classifications. Should a company’s operating circumstances deteriorate or its financial metrics regularly deviate from the norm, swift action is warranted.

As the number of delisted stocks continues to climb, there is an urgent need for appropriate regulatory measures to ensure investor protection. In scenarios where a stock enters the delisting transition period and faces a sudden plunge exceeding 50%, investors could suffer considerable losses.

Regarding cases of financial fraud or misleading initial public offerings (IPOs), regulators should streamline the requirements for investor compensation, minimize the time taken for claims, and enhance overall efficiency in processing claims. Additionally, those involved in fraudulent activities—including major shareholders, board members, and intermediaries—should be held jointly liable to ensure better protection of investors' rights.

When it comes to par value delisting, it would be prudent to establish varying delisting standards based on a company's operational health. For instance, if a firm has not reported losses or its three-year average revenue exceeds 10 billion yuan, companies triggering par value delisting rules may be granted an additional 90-day window to stabilize their stock prices. In contrast, firms with poor fundamentals and revenue significantly below the stated threshold should face delisting regulations according to the 20-day price criterion.

Moreover, companies meeting delisting conditions should provide investors with advance risk warnings for ten consecutive trading days before entering the delisting transition phase. This could include notifications through SMS, calls, or other communication methods to prevent investors from suffering more substantial losses.

As the number of stocks at risk of delisting continues to rise, enhancing risk awareness becomes imperative for investors. By steering clear of poorly performing or flagged stocks, investors can considerably reduce their exposure to potential risks.