After a turbulent start to the year, Didi Global (NYSE:DIDI) is back in the green as China prepares to meet certain U.S. regulatory requests. The Chinese tech stock has spent a lot of time in the red, due primarily to delisting concerns. Today, however, the company finally has some good news to celebrate. The regulatory roadblocks that have concerned investors regarding Chinese stocks may be about to shift. DIDI stock is soaring on this announcement, as are many of its Chinese tech peers.
What’s Happening With DIDI Stock
This morning, Barron’s reported that Chinese government officials are “preparing to meet a key demand of U.S. regulators.” Indeed, Chinese regulators are getting ready to hand over auditing reports for most of the Chinese companies listed on major U.S. exchanges later this year.
Didi stock is surging on the news. DIDI finished pre-market trading up 17%, making it a top gaining stock for the morning. Since then, it has risen more than 20% in the first hour of trading.
Other Chinese firms are also rising on the news. E-commerce giant Alibaba (NYSE:BABA) and electric vehicle (EV) producer Nio (NYSE:NIO) are up 6% and 7.5%, respectively. As of this writing, though, DIDI stock remains the winner of the morning.
Why It Matters
Chinese stocks have battled many negative market forces since the year began. With crackdowns both from their own government and from that of the U.S., negative momentum has been a defining trend. Additionally, China’s allegiance to Russia hasn’t helped its financial markets.
DIDI stock has suffered significantly through it all, falling more than 60% over the past six months. In November 2021, the company announced plans to comply with demands from China’s government to delist from the New York Stock Exchange. That news sent DIDI plunging as investor confidence drained.
As InvestorPlace contributor Chris MacDonald recently reported, last week saw delisting concerns resurge as DIDI stock continued falling. His advice for investors was to proceed with caution, and it’s easy to see why. At this point Didi has given investors no reason to be confident that it can start achieving sustainable growth.
Around the same time, fellow InvestorPlace contributor Muslim Farooque echoed these concerns. As he saw it, Didi’s regulatory troubles would continue to persist, driving the stock down further until resolution with China’s government was reached.
As reports indicate, we may be about to see exactly that. However, today’s surge isn’t necessarily a reason for a bullish play on DIDI stock. The company is rising only on speculation right now, and there’s no guarantee that we won’t see further complications. When it comes to complying with U.S. regulations, China’s government’s history is against it.
Additionally, even if the demands are met, DIDI stock’s growth will likely stabilize. While it may bounce back from it’s mid-March price point of less than $2 per share, that doesn’t mean it will be sent back to its $15 price peak.
What It Means
The bottom line for DIDI stock is clear. While the resolving of regulatory disputes between its government and the U.S. would be good news, it will take more than that for investor confidence to be fully restored.
The trend of delisting concerns surrounding Chinese stocks has cast dark storm clouds over these companies. Additionally, Didi’s reputation is still that of a company that was quick to comply with a government demand to delist from U.S. markets.
Didi will need multiple company-specific catalysts to demonstrate any type of sustainable growth. Until it does, DIDI stock is still a play that should be avoided, even as temporary good news creates superficial momentum.
On the date of publication, Samuel O’Brient did not have (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.