Just days after DiDi Global pulled off one of the biggest U.S. initial public offerings this decade, a Chinese cybersecurity regulator ordered its removal from China’s smartphone app stores, alleging the ride-hailing company illegally collected and used customers’ personal information. Half a billion of Didi’s users found themselves unable to use Didi the next day. The stock promptly fell 10% and has since traded well below its IPO price. Didi’s fall took down all the other Chinese stocks that trade on the US stock markets—including Tencent, Alibaba and JD.com.
In Nov 2020, Chinese regulators blocked Ant’s IPO, which had been slated to become the world’s largest, at a value of $37 billion. The clampdown began after comments from Jack Ma, founder of Alibaba and Ant Group, were interpreted as criticism of the Chinese government’s approach to regulating big tech. After the Didi debacle, it is clear that the Chinese government has its fingers in every single major IPO and that brings up the bigger question: whether investing in Chinese companies is a wise investment for investors or should we simply stay away from investing in China?
Future Wealth’s View
In our article in Nov 2020, following Ant’s botched IPO, we had cautioned investors stating that “Ant Group IPO is a lesson for all us who underestimate the risks associated with investing in emerging markets.” The link to the article is here – https://futurewealthllc.com/
The political risk that China presents to investors far exceeds any other risk that the financials of the company may present. Earlier this month, on the 100th anniversary of the Communist Party celebrations, Xi Jinping had a few quotes that would send chills through any investor considering putting money into Chinese companies. Here are a few quotes: “Only socialism can save China, and only socialism with Chinese characteristics can develop China,” he said, referring to the system under which the party embraced markets to reform the economy. He added that “we will never allow anyone to bully, oppress or subjugate China”. “Anyone who dares try to do that will have their heads bashed bloody against the Great Wall of Steel forged by over 1.4 billion Chinese people,” he said.