China audit deal offers relief but few reasons to invest

HONG KONG, Aug 29 (Reuters): Investors have cheered a breakthrough deal that promises US regulators access to Chinese companies' accounting paperwork but say markets will need to see successful inspections and economic recovery before much more money can be expected to move to China.
At least in principle, the agreement, announced on Friday, satisfies a long-held US demand for unfettered access to Chinese audit papers - dramatically cutting the risk of Chinese firms being removed from US bourses due to non-compliance.
Yet US officials warned the deal was only a first step - and financial markets are similarly cautious. Investors are waiting to see actual cooperation and worry that, while the deal is positive, it is not enough to pierce economic gloom or resolve broad Sino-US tensions.
Share price gains made on rumours ahead of the audit agreement were capped by a new round of risk aversion on Monday, triggered by rising global interest rate expectations.
The US-listed shares of one-time darling Chinese internet businesses, such as Alibaba and Baidu , are trading at less than half of 2021 highs and not far above recent troughs.
"There is optimism based on the fact China and the US can see eye to eye and seek common ground," said Sam Lecornu, co-founder and chief investment officer at fund manager Stonehorn Global Partners in Hong Kong.
"But the audit issue is not the biggest driver of negative sentiment towards China," he said. The two countries still had "bigger deals to be done that would help lift that sentiment."
Investors are chiefly worried about a sharp slowdown in the Chinese economy that has caused confidence and spending to slump and unemployment to spike - partly reflected in this month's 2.5 per cent slide for the Chinese yuan.
Then there are sharply rising US interest rates - an incentive for US investors to stay home - new strains in US-China relations over Taiwan and persistent nerves about regulatory tightening in China, especially for internet firms.
"This announcement was a good outcome," said George Boubouras, head of research at K2 Asset Management in Melbourne.
"But (US-China) divergence will continue to occur .... There are too many differences between the West and how China wants to dictate their narrative. The tension will remain."