Jack Ma Arrest, SEC DiDi Investigation Hit China Tech Stocks
Mainland traders will have a nasty shock on their hands when they return to their computer screens on Thursday after a long vacation. On Wednesday, the Hong Kong market saw strong sales of Chinese tech names such as Alibaba Group Holding ((BABA) and HK:9988), which fell 3.7% on the day.
Investors have been spooked by just about anything.
They were spooked for a second when they thought Alibaba lightning rod Jack Ma had been arrested for posting seditious stuff on the internet. It wasn’t true, but it was pretty funny.
Investors were also spooked by ride-hailing operator DiDi Global (DIDI), which mentioned in its annual report that it was under investigation by the United States Securities and Exchange Commission over its IPO. disastrous stock market last June.
Investors were also spooked by what the Fed might do tonight Asian time. They were scared off by insider selling and big investors. Markets in Shanghai and Shenzhen will resume trading on Thursday after a break since Friday for Labor Day. Hong Kong was only closed on Monday.
Negative sentiment drove the Hang Seng Tech Index down 3.3% for the day in Hong Kong.
Health clinic and online pharmacy JD Health ((JDHIY) and HK:6618) bore the brunt of the sale, down 13%, after a filing showed the sale by its chairman. But there were heavy losses for rivals Alibaba affiliate Ali Health (ALBBY and HK:0241), down 7.5%, as well as Ping An Good Doctor (PIAHY and HK:1833), down 5.1%.
Video-sharing site Bilibili ((BILI) and HK:9626) fell 8.2% in Hong Kong ahead of earnings ahead of the start of U.S. trading on Friday. The “Chinese YouTube” warned on April 29 that advertising and e-commerce sales would be hit by China’s COVID crackdown and the lockdown in Shanghai, where strict movement restrictions have halted the shipment of goods.
Grocery delivery app Meituan (MPNGY & HK:3690) fell 4.6% after its filing showed venture capitalist Sequoia Capital cut its stake by nearly $800 million. Its ability to deliver goods has also been hampered in Shanghai and Beijing, not to mention the other 44 cities under some form of lockdown.
Hong Kong’s broad market benchmark, the Hang Seng Index, ended the day with modest losses, down 1.1%, showing that the selling was mainly in technology.
Erroneous Ma identity
A bizarre incident that led to a flash crash in Alibaba shares on Tuesday exposed just how fragile sentiment is when it comes to Chinese technology and how much political factors influence the sector.
Alibaba shares suddenly fell 9.0% at the open on Tuesday after state broadcaster CCTV reported that a person named Ma had been arrested by authorities in Hangzhou, the hometown of Alibaba, suspected of using the Internet to subvert the state and endanger national security.
Using information from the State Security Bureau, which launched a “criminal action” against the person, CCTV said the individual was Ma XX, obscuring the second character of the Chinese name. This led investors to connect the dots that the person under investigation is Jack Ma, the figurehead and co-founder of Alibaba, whose Chinese name is Ma Yun.
Police later clarified that the person had three Chinese characters in his name – in other words, it was the mystery man Ma XX XX who had been arrested. Because that excludes Jack Ma, Alibaba shares rebounded. Speculation has surged about a local Chinese Communist Party official, Ma Xiaohui, who has already been investigated. Ma, a former deputy mayor of Hangzhou, was expelled from the Chinese Communist Party in March for “serious violations of party discipline,” the polite term the party uses for corruption.
But that too seems to be off the mark. The Ma in question works in information technology and hardware R&D, according to the state-owned company. world times. The man is said to have colluded with dark ‘alien forces’, who brainwashed him into spreading ‘rumors and misinformation’ and posting a ‘so-called Declaration of Independence’ on the internet.
I say “allegedly” because the investigation is ongoing. However, it is a sign of how the police, the Chinese Communist Party and the railroad courts that the world times reports all activity as fact. “Ma also targeted youths and university students, tricking them into joining activities that smear the country and the people,” the state-run newspaper said. “Ma’s activities are in violation of Chinese laws,” he concludes. “The Internet is not an outlawed place and those who attempt to harm the interests of the country, undermine its security or betray the country and the people will be severely punished, according to the relevant departments.”
In other words, this particular Ma is in big trouble.
Meanwhile, Alibaba shares sold off in line with the tech sector on Wednesday, leaving them down 16% for the year. They had a pretty good rally around the Labor Day holiday, up 10.2% despite today China’s Politburo promising to stabilize capital markets and saying it may soon ‘conclude’ its correction of the technology industry.
And then there is DiDi…
DiDi Global said for the first time in its results that it was under investigation by the US securities watchdog. Days after its IPO on June 30 last year, Chinese regulators blocked it from signing new customers and pulled its apps from Chinese stores.
“After our U.S. IPO, the SEC contacted us and inquired about the offer,” DiDi admits in its annual report. “We are cooperating with the investigation,” subject to strict compliance with Chinese law, DiDi said, without giving details. “We cannot predict the timing, outcome or consequences of any such investigation.”
DiDi cites a long list of risks in its report; it’s a list full of litigation, investigations and regulatory inquiries, mostly from the Chinese side. The SEC also wants access to DiDi’s audits, as it does with all Chinese listings, and could force them all off the list if Chinese regulators don’t allow access.
To be honest, I would have been surprised if Didi Global was do not is under investigation by the SEC, as there are numerous class action lawsuits claiming that the company should not have staged the IPO when it did. The SEC will check whether the company had any idea that it might come up against the Chinese side.
I believe DiDi followed normal listing rules outside of China and complied with the rules and regulations of securities regulators. But he broke a “suggestion” – a then-non-existent rule on data protection – from a previously little-known department now tasked with verifying cybersecurity. He is the victim of incredibly bad timing, that’s for sure. If he had wind of a possible suspension, it would be really stupid, and these class action lawsuits could have grounds.
DiDi has declared its intention to delist in New York and re-list in Hong Kong. DiDi shareholders are due to vote on the plan on May 23. With DiDi’s stock price down almost 86% from the listing price of US$14, many of them want some sort of redress.
Most Asian markets ended the day with small losses, but losses nonetheless, with Tokyo’s Topix broad market index down 0.1%, Korea’s Kospi down a similar amount and the Australia’s central bank’s decision to raise rates by a surprisingly large 25 basis points pushing the S&P/ASX 200 index down 0.2%.
It will be another sleepless night for active investors tonight. The Fed’s interest rate decision will come at 2 a.m. for traders in Hong Kong, Beijing and Singapore, 3 a.m. if you’re in Tokyo. So we’ll see a reaction on Thursday once they get some rest after digesting this news.
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