Chinese stocks are down across the board a day after rideshare company Have I got (NYSE:HAVE I GOT) has announced its intention to withdraw from the list New York Stock Exchange and as Beijing regulators impose new restrictions on live streaming.
Shares of large companies such as Ali Baba (NYSE:BABA), Baidu (NASDAQ:BIDU) and JD.com (NASDAQ:J.D.) are each down 2% or more today. Why? It appears spooked investors are weighing the implications of plans to delist DIDI shares and the prospect that China’s crackdown on state-owned companies, and tech stocks in particular, could continue.
What happened with Chinese stocks
Yesterday, DiDi announced that it would hold a meeting of shareholders on May 23 so they can vote on a proposed delisting. This news caused DIDI shares to fall 20% on the day, pushing its decline since its IPO last July to 86%. DiDi Global shares are now trading at $2 each.
Meanwhile, Chinese media reports authorities in Beijing are taking steps to ban the live streaming of unauthorized video games, a move that signals a broader crackdown on the entire gaming industry. Taken Together , news of the delisting of DIDI shares and tightened restrictions on the gambling industry have caused investors to reassess the risks of owning Chinese stocks.
why is it important
Chinese stocks have been under pressure for more than a year since the country’s regulators began cracking down on state-owned companies with a particular focus on Big Tech. Over the past 18 months, Chinese authorities have imposed record antitrust fines, canceled planned initial public offerings and banned cryptocurrency mining.
The crackdown has called into question the future of major Chinese tech stocks, many of which are seen as world leaders in areas including e-commerce, cloud computing and artificial intelligence. The turmoil has also raised fears that many top Chinese stocks will delist on US exchanges, a problem that has been exacerbated by the planned delisting of DiDi Global from the NYSE.
Major Chinese stocks such as BABA and BIDU have fallen over 40% in the past 12 months.
The turmoil in Chinese stocks is set to continue as regulators continue to restrict the use of technology and DiDi Global prepares to delist in New York. The duration of the decline in Chinese equities remains unknown, but given the continued declines, investors should be cautious with securities of companies based in mainland China.
As of the date of publication, Joel Baglole had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.