What to make of poor DiDi Global (NYSE:DIDI) stock?
No sooner had the Chinese ride hailing company held its American initial public offering (IPO) on June 30, raising $4.4 billion, than the Chinese government cracked down on the company.
The move sent its newly listed shares on the New York Stock Exchange plunging nearly 40%. It trades this morning at about $12 per share.
But with Chinese authorities continuing to punish DiDi Global, should any investor risk taking a position at this point?
A Closer Look at DIDI Stock
Within days of DiDi Global going public on the NYSE, China’s ominous sounding “Cyberspace Administration” announced that it was blocking new users from DiDi’s app, citing security risks and sensitive online data.
DiDi issued a statement saying the move to limit access to its app would have an “adverse impact” on its revenue in China, the primary market where it operates. This pronouncement sent investors fleeing and caused DIDI stock to drop 30% in one day.
The removal of DiDi from both Alipay and WeChat effectively crippled the company in China, where it had 550 million users and tens of millions of drivers throughout the country.
The Chinese government said the WeChat and Alipay removals are part of an ongoing “cybersecurity review” of DiDi Global and its operations.
Chinese authorities have ordered more app stores in China to remove the ride-hailing service, further hampering its operations.
The ongoing crackdown on DiDi appears to be part of China’s broader efforts to target the country’s increasingly influential and successful technology giants.
Within the last year, Beijing has also canceled a planned $34.5 billion IPO of the Ant financial group and levied a $2.8 billion antitrust fine on Alibaba for abusing its market dominance.
Chinese authorities have accused DiDi of holding a monopoly position when it comes to ride hailing companies in the nation of 1.4 billion.
The company does control more than 85% of the rideshare market within China and more people use its car service than fly by air or travel by train.
While the company continues to grow at a rapid clip (it registered a 106% year-over-year sales increase in the first quarter), all of its business is within China, making it vulnerable to the actions that have been taken by the government in Beijing.
More broadly, there is growing concern that Chinese authorities are looking to exert control over any and all China-based companies that want to list shares on overseas stock exchanges.
The government-run Cyberspace Administration, which bills itself as the country’s internet watchdog, recently proposed that any company with data on more than one million users must seek the agency’s approval before listing shares on an overseas exchange, and must also submit IPO materials for the agency to vet ahead of any listing.
Such actions have had a chilling effect on Wall Street and caused shares of other major Chinese tech companies listed on U.S. stock exchanges to fall.
The stock of Tencent, Baidu (NASDAQ:BIDU) and other technology companies have fallen 3% or more since DIDI stock’s U.S. debut.
Adding to the concern and uncertainty is the fact that there is no indication when China’s government will stop its current crack down on domestic technology companies, or if it will stop.
Avoid DIDI Stock at All Costs
It’s difficult to imagine a worse case scenario than what DiDi Global has experienced since its IPO a few weeks ago.
In only a few days, China’s government has managed to torpedo and effectively sink one of the country’s biggest and most successful companies.
That Beijing would wait until DiDi stock listed in New York before taking action against the company indicates that Chinese authorities are trying to send a message that they are in control and that no company will succeed without the state’s support.
In such a climate, it would be ludicrous for any investor to take a position in DIDI stock, or any Chinese company for that matter.
The risks to investors posed by the ongoing crack down on technology companies is too great and yet
another example of how China differs from the U.S. and other western countries. For the time being, investors would be better off putting their money into American-based technology stocks or maybe stocks of European companies. China is closed for business.
Disclosure: On the date of publication, Joel Baglole held long positions in BABA and BIDU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.