Didi warns Chinese investors who bet ‘the worst was over’

Bloomberg

Even by the volatile standards of Chinese stocks, the swings in Didi Global were extraordinary.
In the span of just a few hours, shares of the ride-hailing giant flipped from a 16% gain to a 12% loss, bounced back into positive territory, then turned lower yet again. And that was all before the opening bell in New York. By day’s end Didi had plunged 22%, catalysing losses in US-traded Chinese stocks that now amount to more than $1 trillion since February.
The recent gut-wrenching ride — triggered by Didi’s announcement of plans to switch its listing to Hong Kong from New York just five months after going public — shows how perilous betting on Chinese equities remains more than a year into Xi Jinping’s campaign to remake the country’s tech sector along with much else in Asia’s largest economy.
While the broad contours of Xi’s vision are clearer than they were last November, the world is still in the dark on policy details that could prove crucial to the future of China’s biggest listed companies. Knee-jerk hopes that Didi’s announcement might signal an inflection point in the government’s crackdown quickly faded as the company’s 127-word statement left investors groping for answers on how the US delisting would play out.
The bigger question now hanging over Chinese stocks: How much pain is Xi willing to inflict on investors as he tightens his grip on the data-rich private sector and tries to make China’s economy more equitable? Perhaps the only certainly is that shareholder interests will take a distant back seat to those of the Communist Party. Didi’s travails “serve as a reminder of the regulatory risks in Chinese stocks,” said Jun Rong Yeap, a market strategist at IG Asia.
The selloff — which sent the Nasdaq Golden Dragon China Index down by the most since 2008 and dragged the Hang Seng Tech Index to a fresh low in Hong Kong — has been particularly painful for money managers and Wall Street analysts who turned bullish on Chinese equities in recent weeks. HSBC Holdings, Nomura Holdings and UBS Group all turned positive in October, citing reasons including cheap valuations and receding fear of regulation from Beijing. BlackRock Inc and Fidelity International were among big asset managers making similar arguments.
Didi’s delisting plan came at the urging of Beijing, which opposed the company’s New York IPO because of concerns about potential leakage of sensitive data to authorities in the US, China’s main geopolitical rival, according to people familiar with the matter. A Didi representative didn’t respond to a request for comment. China’s securities regulator said it respects companies’ choices on where to list their stock.

It called reports that regulators are telling firms to drop their U.S. listings “completely misleading.”
The saga fits a pattern of regulatory surprises since last November, when Beijing torpedoed the blockbuster IPO of Jack Ma’s Ant Group Co. days before it was due to start trading. Xi has made clear that Communist Party priorities — including data security, tighter control over tech giants, and more equitable distribution of wealth under the “common prosperity” framework — take precedence over the treatment of local and international investors. Didi’s delisting suggests Xi is becoming more confident he can achieve his aims without the help of U.S. capital markets.
Optimists argue that much of this is already priced in. Alibaba Group Holding Ltd. offers just one example of how far valuations have tumbled: Shares of the e-commerce giant trade at an all-time low of 13 times analysts’ projected earnings for the next 12 months, down from almost 30 a year ago. The stock’s 20% valuation premium over Facebook parent Meta Platforms Inc. has turned into a 34% discount, according to data compiled by Bloomberg.