Will the End of Didi's Probe End Chinese Tech Stocks' Woes?

China's cybersecurity watchdog has ended its investigation into Didi, instigating new hopes of an easing crackdown.
Jun. 06, 2022 19:28
Will the End of Didi's Probe End Chinese Tech Stocks' Woes?

(CapitalWatch, June 6, New York) The Cyberspace Administration of China has concluded its probe into ride-hailing giant Didi (NYSE: DIDI) this week, sparking a rally for Chinese tech stocks. 

Didi has been under investigation by the CAC since the company's massive initial public offering in New York almost a year ago. The company's apps were removed from Chinese app stores, but the CAC said they will now return. 

A year ago, Beijing asked Didi not to go through with the listing ahead of its $4.4 billion IPO due to national security concerns. 

The fiasco occurred amid Beijing's extensive crackdown on tech, especially targeting titans Tencent (OTC: TECHY; HKEX: 0700) and Alibaba (NYSE: BABA; HKEX: 9988). 

In recent months, Chinese officials have signaled an easing of the crackdown, bringing new hope to Chinese tech ADSs that have been devastated over the past year. 

On Monday, Didi shares skyrocketed over 50% intraday and were up over 35% in the afternoon. But that might not mean much for the company.

Just a few weeks ago Didi shareholders voted for its delisting from the New York Stock Exchange. The company said it will file on or after June 2, with the delisting expected to go into effect within 10 days of filing, but it's not clear whether it's pulled the trigger yet.

Even with the boost, Didi still faces pressure from China. For months, the company has implied its intentions to delist, and it has been pursuing a Hong Kong listing that's now on ice. The company also remains under investigation by the U.S. Securities and Exchange Commission. 

Although Didi must grapple with its down problems, the well-received news reverberated across the sector on Monday. 

U.S.-listed Chinese tech stocks surged in the wake of the investigation's close. This is one in a series of bumps for the sector as signs that Beijing is wrapping up its regulatory crackdown come in. 

The two companies whose investigation ended alongside Didi, Full Truck Alliance Co (NYSE: YMM) and Kanzhun Ltd (Nasdaq: BZ), were also lifted by over 20% on the news. 

Chinese techs including Alibaba (NYSE: BABA; HKEX: 9988), Baidu (Nasdaq: BIDU; HKEX: 9888), Pinduoduo (Nasdaq: PDD) and JD.com (Nasdaq: JD; HKEX: 9618) rode the wave, all up over 2% in New York. 

Tencent (OTC: TCEHY; HKEX: 0700) was also up almost 2% and Chinese electric vehicle firms are surging. Nio (NYSE: NIO; HKEX: 9866; SGX: NIO) and XPeng Inc. (Nasdaq: XPEV; HKEX: 9868) are up by over 4% and 6%, respectively, and Li Auto Inc. (Nasdaq: LI; HKEX: 2015) has shot up almost 11% Monday afternoon.

Beyond just Chinese companies, the tech-heavy Nasdaq bumped up 1.8%, and the S&P 500 rose 1.3%.

Although today's rally is one of the strongest since Beijing's crackdown again, it's not clear if this will truly bring Chinese ADRs out of the woods. 

Companies must still contend with China's sluggish economy and the Fed's rate hikes. U.S.-China tensions and conflict over Washington's audit requirements also still loom, and China hasn't fully let go of its hawkish stance yet.

The end of Didi's investigation was certainly a milestone in rebuilding confidence for Chinese tech stocks. But overall market conditions still weigh heavily on companies, and there's no certainty that the sector will continue its upward trajectory.