U.S listed Chinese stocks continued their freefall this past week, wiping out over $80 billion dollars in value on Friday alone. The precipitous decline came as Didi Global (NYSE: DIDI) announced that it would immediately begin the process of delisting from the New York Stock Exchange, less than 6-months after its debut, in favor of repatriating onto the Hong Kong Stock Exchange. Didi closed 22.2 percent lower on the day, rounding out its 56.6 percent decline since its IPO at the end of June.
Although Didi did not issue an official statement rationalizing the decision, the move was made less than a day after the SEC finalized its ruling that would force foreign stocks to delist in the future for failure to meet audit oversight requirements. For the most part, the SEC ruling will have limited implications for foreign entities traded on major U.S. exchanges, as most have been compliant with the SEC’s audit requirements for years; however, Chinese companies have notably held out at the behest of a Beijing directive citing national security concerns. While these fears may be justified for an entity such as Didi, U.S investors do require additional protection following the Luckin Coffee fraud revealed in early 2020.
As President Reagan said, “Trust, but verify”.
Notably, Didi’s announcement dragged down other China favorites on Friday, including Alibaba (-8.3%), JD.com (-7.7%), Nio (-11.3%), and Li Auto Inc. (-16.0%). While buying the dip has arguably been an effective strategy for most of 2021, it may prove prudent to let the dust settle on these names first.