China worried as Didi still highly volatile
In just a few hours, shares of the ride-hailing behemoth went from a 16% gain to a 13% loss, then recovered back to a 13% gain. And that was before New York’s opening bell.
Didi had fallen 22% by day’s end, triggering losses of over $1 trillion in US-listed Chinese companies since February.
A year into Xi Jinping’s attempt to transform China’s tech sector and much else in Asia’s largest economy, Friday’s gut-wrenching journey underscores how risky trading on Chinese equities remains.
While Xi’s vision is now clearer than it was in November, policy details that could affect the future of China’s largest listed companies remain unknown. The 127-word Didi statement had investors scratching their heads over how the US delisting would work.
Worse, as Xi tightens his hold on the data-rich private sector, how much damage is he ready to inflict on investors? The only certainty is that shareholder interests will be subordinated to Communist Party interests.
Didi’s woes “serve as a reminder of the regulatory risks in Chinese stocks,” said IG Asia’s Jun Rong Yeap.
The selloff — which brought the Nasdaq Golden Dragon China Index to its lowest level since 2008 on Friday — has been particularly unpleasant for money managers and Wall Street analysts who recently become positive on Chinese shares. HSBC Holdings Plc, Nomura Holdings Inc., and UBS Group AG all posted gains in October, citing low valuations and easing regulatory concerns from Beijing. Big asset managers like BlackRock and Fidelity International made similar arguments.
Beijing urged Didi to delist because it feared sensitive data might be leaked to US authorities, according to sources familiar with the case.
Didi said in a statement that existing investors can convert their holdings into new publicly traded shares, but provided little information on how this will work and the repercussions for shareholders.
On Friday, Didi did not respond to a request for comment. The Chinese securities regulator said Sunday it respects companies’ listing decisions. According to the article, regulators are urging corporations to withdraw their US listings.
According to Sam Le Cornu, co-founder and CEO of Stonehorn Global Partners, the collapse has generated buying opportunities for long-term investors. But, in an interview with Bloomberg Television on Friday, Le Cornu warned that China’s tech industry’s future is uncertain.
According to people familiar with the situation, Didi plans to list in Hong Kong in March. Aside from the technical issues of calculating a fair price, management will have to deal with prospective lawsuits.