DiDi delisting could be the start of a $2 trillion U.S. market exodus

The short but tumultuous life of Chinese rise share company DiDi Global (NYSE: DIDI) on the New York Stock Exchange will come to end within six months, after the company announced it would be delisting from the exchange.

The DiDi delisting comes as no shock to most observers.

The ‘Uber of China’ IPO’d in the U.S amid intense regulatory scrutiny from Chinese authorities in June this year. They simply didn’t want DiDi to ever list in the U.S.

Just days after listing, Chinese regulators announced a cybersecurity review into the company which resulted in the company’s smart phone application being removed from Chinese app stores.

For Didi shareholders delisting is not the best news, but it is by no means a capital destroyer.

While it’s possible the company may be taken private, insiders are certain Didi will re-list in Hong Kong, which will see the company’s NYSE-listed American Depository units transition into Hong Kong-listed stock.

The company hinted that this is the most likely outcome in this statement following the delisting decision:

“The Board” has authorized and supports the Company to undertake the necessary procedures and file the relevant application(s) for the delisting of the Company’s ADSs from the New York Stock Exchange, while ensuring that ADSs will be convertible into freely tradable shares of the Company on another internationally recognized stock exchange at the election of ADS holders.”

Growing disconnect between east and west

Chinese finance expert at The Economist, Don Weinland, believes the Didi delisting is emblematic of a growing disconnect between U.S. and Chinese regulators.

“Chinese companies have been going to the U.S. to raise capital for decade, this was generally seen as a positive thing on both sides. To American investors this was a very positive thing, they were getting access to Chinese companies. For the Communist Party, the Chinese Government, I think it was also viewed in many ways as quite positive as well, that they were bringing in much needed dollar funding at a lower cost – they were linking up with a pretty big pool of professional talent in New York,” said Weinland in a podcast on the topic.

“So this was definitely a good thing for quite a while, now its changing very rapidly. It’s kind of strange in a way to see U.S regulators and Chinese regulators agree on one thing which is that Chinese companies should no longer be listed in the U.S.”

Weinland believes “within the next couple years” all Chinese companies could be delisted from the U.S., resulting in around $2.1 trillion in market value being wiped off U.S. exchanges.

Managing director at Longview Global, Dewardric McNeal, agrees that right now, there appears little hope of respite in the sparing between U.S. and Chinese regulators.

“From the U.S regulatory side, the U.S wants access to auditing documents, internal auditing documents that shows that their auditing is sound. China has always denied access to these and this has been a major sticking point between the two sides for a long time,” McNeal told CNBC.

“You also have a very emboldened cyber security regulator in China, that is now saying basically that it doesn’t want certain types of companies to necessarily be listed overseas. There’s been a lot of language around how a company like DiDi Global which is one of the world’s biggest ride hailing companies could represent a national security threat in some of the data it has access to.

“It’s really hard to understand exactly how the data that they’re talking about gets into U.S. regulatory hands, but this of course connects back to a much bigger campaign that’s going on in Chinese – where Chinese regulators and the Chinese Government have been cracking down on tech companies for about a year now and it’s not just limited to DiDi it also involves Fintech companies, delivery companies.

“Because of the dual tightening, both here in the U.S. under the Holding Foreign Countries Accountable Act, and in China under the Personal Information Protection Law, I suspect this is a wave of delistings that are going to happen because I’m just not sure that we understand what will satisfy Beijing or Washington with respect to these types of listing.”

Be wary of the data-rich

McNeal says the best advice for investors in the current climate is to be aware that data-rich companies can easily fall into a geopolitical disarray.

“If you’re an investor and you’re in the gig economy or the emerging technologies sectors, companies that hold a treasure-trove of data, I would be concerned,” he says.

“Until we get a better sense of what really is going to satisfy regulators… I’m hesitant to get really bullish on these stocks.

“I think the important thing to remember is both China and the U.S. are viewing these companies through a national security lens, so despite all of the business fundamentals and the financial fundamentals you cannot invest in these stocks without understanding how both sides see these companies through national security lenses.”

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