DIDI action: the easing of Chinese regulations brings DiDi back from the brink

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Have I got (NYSE:HAVE I GOT) went public at $14 per share last June, but it never became one of the best-performing initial public offerings (IPOs) of the year. In fact, many investors who invested money to buy the stock ate a modest pie as regulatory activity in China sent DIDI stock down sharply.

However, the shares of the Chinese version of Uber (NYSE:UBER) rose sharply after the Chinese government announced that it would work to support foreign listings. This announcement was timely for DiDi, who has been under pressure lately.

This development restored confidence in the American Depository Receipts (ADR) market. Several changes have been made to the regulatory environment in China in recent years. In particular, the rules for tech companies have changed significantly, which has impacted Chinese stocks listed overseas. With regulatory activity easing, investors are turning to US-listed Chinese stocks, causing substantial volatility in their trades.

The Financial Stability and Development Committee of the State Council has said the Chinese government is committed to supporting capital markets and work closely with the Securities and Exchange Commission (SEC) to ensure compliance. In addition, they will also help struggling Chinese real estate companies.

China has come under pressure from the Russian invasion of Ukraine, which has caused major problems for its economy. Their government needs to make quick decisions to get back on track and maintain a stable economy. The initiative therefore makes sense.

DiDi, China’s Uber, has come back from the brink due to the announcement. One day after registration on the New York Stock Exchange last June, DiDi received notice from Chinese regulators saying they had to get off the list. It then decided to pursue a listing in Hong Kong, but again ran into trouble with regulators.

Is the DIDI share a buy, hold or sell?

DiDi went public at $14 per share last June and became one of the worst performing IPOs of 2021. It fell into the penny stock category from an all-time high of around $18.

DiDi announced its plans to delist from the NYSE late last year. However, it will no longer seek listing in Hong Kong. And DiDi’s app data security measures still remain “inadequate” and remain suspended in Chinese app stores.

Besides these external factors, DiDi itself has some issues that it needs to address. For example, it is trying to aggressively expand into foreign markets. International business revenue has grown 57% so far in the first nine months of 2021. In contrast, losses for this segment jumped to 3.99 billion yuan on an adjusted earnings before interest, tax, depreciation and amortization (EBITA) basis.

Although the company is expanding rapidly and its home market is home to the largest middle class in the world, I rate DIDI’s stock as a “Hold”. There needs to be more clarity on what will happen to DIDI shares in the future. Are the shares headed for forced delisting, or will we see the company meet the conditions to pave the way for a Hong Kong listing before it is kicked off the NYSE? These are questions that need to be answered before investors can make a long-term commitment.

At the date of publication, Faizan Farooque did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

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Read more:Penny Stocks – How To Profit Without Getting Scammed

Faizan Farooque is a contributing author for InvestorPlace.com and many other financial sites. Faizan has several years of experience in stock market analysis and was a former data reporter at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions about their portfolio.

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