Lately, one of the more violent movers in the market has been DiDi (NYSE:DIDI). Today, shares of DIDI stock are down in a big way, dropping 13% at the time of writing. This move comes on heavier-than-usual volume and follows a general trend lower in the Chinese tech sector right now.
Like its Chinese tech peers, ride-hailing company DiDi saw its valuation plummet then bounce before today’s decline. Previous assurances by Chinese regulatory authorities — which claimed they could resolve issues that may lead to the U.S. delisting Chinese stocks — had been a key driver of this increased interest in Chinese-listed American depository receipts (ADRs).
However, today the delisting rhetoric is picking up once again. Specifically, reports that the Public Company Accounting Oversight Board (PCAOB) commented on this news — suggesting it was “premature” — have led to a sharp revaluation of these companies.
For investors in U.S.-listed Chinese stocks, the risk of delisting has been ongoing since President Donald Trump signed the Holding Foreign Companies Accountable Act (HFCAA). Essentially, Chinese companies have three years to provide U.S.-audited financial statements or risk being delisted. For investors in ADRs, which don’t provide actual ownership in Chinese shares, this amplifies the risk of a total loss of capital.
Let’s dive more into this issue for investors watching the incredible price action with Chinese stocks right now.
What’s Going on with DIDI Stock?
As mentioned, commentary from the PCAOB is a key factor driving DIDI stock and its Chinese peers lower today. The PCAOB seems to be rather rigid in its view on how to handle foreign companies. Specifically, commentary that the audit rules in place via these new regulations are non-negotiable have investors repricing risk.
Additionally, news that the U.S. Securities and Exchange Commission (SEC) is now targeting Chinese social media platform Weibo (NASDAQ:WB) for a potential delisting has ratcheted up concerns. To date, the companies on the SEC’s blacklist have excluded high-profile Chinese tech stocks. However, the inclusion of Weibo as an at-risk company now has investors on watch.
What will ultimately come of this delisting drama remains to be seen. Indeed, a resolution could be on the table. Perhaps there’s some room for negotiation.
For now, though, investors appear to be playing it safe with ADRs.
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On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.