Last week, a driver in Beijing utilized the Didi ride-hailing software on his smartphone.
Photo:
Getty Images/Jade Gao/Agence France-Presse
By
Close Michael Wursthorn
Michael Wursthorn is a writer and musician.
Biography
@4BetterOrWurst
michael.wursthorn@wsj.com
Updated at 6:40 p.m. on July 6, 2021 ET
China’s technology stocks dropped on Tuesday as the country’s cybersecurity authority expanded its investigation into some of the country’s newest listed companies.
The ride-hailing behemoth
Didi Global Inc. is a company based in China.
-19.58 percent DIDI
Since reaching a high of $18 per share on June 30, the day of the company’s public debut, the stock has lost about a third of its value. Chinese officials stopped the firm from adding new users last week and initiated an investigation into its data practices.
Chinese officials announced similar investigations into other newly public Chinese internet businesses on Monday, including a truck-hailing app.
Full Truck Alliance Co. is a company that specializes in trucking.
YMM -6.68 percent YMM -6.68 percent YMM -6.68
and a web-based recruiting tool
Kanzhun Ltd. is a company based in Hong Kong.
-15.95 percent BZ
—sending those stocks, as well as a slew of others in the region, floundering. Full Truck was down about 6.7 percent on Tuesday, while Kanzhun was down 16 percent.
Baidu Inc. is a Chinese search engine company.
BIDU is down 4.96 percent.
Tencent Music Entertainment Group, Tencent Music Entertainment Group, Tencent Music Entertainment Group, Ten
-6.81 percent TME
JD.com Inc. is a Chinese e-commerce company.
-5.04 percent JD
and
Pinduoduo Inc. is a company based in the United States.
Between 5% and 6.8% of the stock market fell.
The current regulatory steps and stock market movements have perplexed emerging-market investors, who say they are caught balancing their bullish outlooks on Chinese tech stock development against increasingly strong regulatory strikes from both China and the United States.
“I get the market; investors despise uncertainty,” he remarked.
Brendan Ahern is a writer who lives in Dublin, Ireland.
The pullback in Chinese tech stocks, according to KraneShares’ chief investment officer in New York. “However, despite the regulatory bark, there hasn’t been any actual financial bite.”
KraneShares manages a number of China-focused funds, including the $4.6 billion KraneShares China Fund.
The KraneShares CSI China Internet ETF is an exchange-traded fund (ETF) that invests in China’s internet
which follows an index that is primarily made up of 51 Chinese internet-related stocks.
The fund’s shares have dropped 18 percent this year, including 5.2 percent on Tuesday. Because the fund has no exposure to Didi and the other two Chinese tech stocks that have lately been targeted by authorities, the fund’s losses are all connected to broader losses in Chinese tech equities.
Mr. Ahern said he continues to remain bullish on Chinese tech companies with customers, citing the country’s strong economic development and growing urban middle class, and said he bought more shares of the KraneShares fund on Friday.
Other investors, such as corporations like Goldman Sachs, are similarly enthusiastic.
BlackRock Inc. is a private equity firm based in New York
-0.11 percent BLK
Tuesday, it reiterated its preference for a greater exposure to China.
“We believe investors are paid for these risks,” BlackRock analysts wrote in a note, noting the possibility of more snags owing to U.S.-China tensions and China’s high debt levels.
Despite this, many Chinese companies have underperformed this year as investors battled a larger trend away from costly, high-growth stocks, as well as a slew of regulatory steps from both Chinese and American regulators.
Chinese regulators have taken a number of moves, including canceling Ant Group Co.’s initial public offering last year, fining Alibaba $2.8 billion in April for allegedly abusing its dominant market position, and accusing more than 100 apps of improperly collecting and utilizing personal data.
Meanwhile, the United States has announced measures to restrict trading in some Chinese equities and to maintain tariffs on items, putting a damper on Chinese imports.
If regulatory issues remain, investors may find emerging-market funds more difficult to sell. In most emerging-market funds and strategies, China plays a significant role. For example, the $32.2 billion iShares MSCI Emerging Markets ETF has over 37 percent of its assets invested in Chinese companies, more than double the second-largest nation exposure, Taiwan.
However, while BlackRock’s fund has maintained a slight gain this year—it is up 4.1 percent since the end of December—shares are trailing most other markets, notably the S&P 500, which is up 16 percent in the same time frame. Following several months of strong inflows, investors withdrew $546 million from emerging-market funds last week, the first withdrawals since early November, according to Refinitiv Lipper data.
Some analysts believe that investors in Chinese and emerging-market-focused funds may witness additional volatility in the coming trading sessions as several major index providers add Didi to their benchmarks, forcing the ride-hailing company into a slew of new ETFs and other funds.
On Thursday, FTSE Russell plans to include Didi in a number of global equities indexes, including the FTSE All-World Index and the FTSE Emerging Index. S&P On Monday, Dow Jones Indices will include Didi to its benchmarks, while MSCI will include the stock in its China All Shares Index on July 15.
S&P declined to comment on whether those intentions have changed, and neither MSCI nor FTSE Russell responded to requests for comment.
Michael Wursthorn can be reached at Michael.Wursthorn@wsj.com.
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‘Moves by Beijing Confound Investors,’ appeared in the print edition on July 7, 2021./n
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