China's Crackdown on companies

[Deleted]

China recently crackdown on its 3 companies. Didi, Full Truck Alliance and Boss Zhipin. All listed in New York in June interestingly.

China recently made new internet and data rules. Usually governments give some time to companies to fully comply. 

But China just ordered to take the app off the app stores and not signup any new users. China, I assume, does not have an independent judiciary that can strike down such heavy handed govt. action.
 
It is a big risk for outside investors.

What do China observers think?

Is it temporary house cleaning and assertion of power by CCP or ongoing risk of investing in China?

(Interestingly China waited for IPO in US to happen before taking action. Otherwise it could have jeopardized the US listing. I find it hard to believe these companies had no clue of this coming action as they claim before their listing. or maybe timing is pure co-incidence.)

[anitya]

If you are ever involved in taking companies public, you will know the company and underwriters had to know what they were doing. They would not have been able to pull off a similar stunt in China why they may have chosen NYSE only listing.

[uncleharley]

Is there any indication why they are picking on oil companies only?

[anitya]

Jul 5, 2021 18:50:57 GMT uncleharley said:

Is there any indication why they are picking on oil companies only?

Can you please elaborate?

If you are referring to China, I do not see they are picking on oil companies only.

[uncleharley]

Jul 5, 2021 18:58:39 GMT anitya said:

Jul 5, 2021 18:50:57 GMT uncleharley said:

Is there any indication why they are picking on oil companies only?

Can you please elaborate?

If you are referring to China, I do not see they are picking on oil companies only.

You are right.  this article from Reuters indicates that they are tightening regulations on all on-line trading,financing, etc of Chinese companies.    www.reuters.com/article/china-markets-overseas/update-2-china-to-step-up-supervision-of-overseas-listed-companies-idUSL2N2OI0SQ

[Deleted]

For now i have decided to stay clear of Chinese ADRs and reduce funds owning Chinese ADRs.

Both China and US regulators are making it hard for these companies. Too much geopolitical and regulatory risk and uncertainty with China in short term.

[yogibearbull]

When an IPO like DIDI tanks days after the IPO, guess who takes the hit? Underwriters.

That is the nature of IPO underwriting. DIDI got all the money from underwriters (at the IPO price) who probably hold lot of DIDI stock. Post-IPO, underwriters try to support price until their inventory clears. But when a stock like DIDI tanks of news, underwriters take the hit. That is the huge risk of IPO underwriting.

Recent news finance.yahoo.com/news/didi-slumps-china-regulators-order-082519039.html

[anitya]

Jul 6, 2021 15:01:44 GMT yogibearbull said:

When an IPO like DIDI tanks days after the IPO, guess who takes the hit? Underwriters.

That is the nature of IPO underwriting. DIDI got all the money from underwriters (at the IPO price) who probably hold lot of DIDI stock. Post-IPO, underwriters try to support price until their inventory clears. But when a stock like DIDI tanks of news, underwriters take the hit. That is the huge risk of IPO underwriting.

Recent news finance.yahoo.com/news/didi-slumps-china-regulators-order-082519039.html

No chance - This is an oversubscribed offering. More will unfold as days go by, and the facts will come out if the loss is material - they would disclose with their Q earnings announcement.   I will be shocked if the underwriters had not already offloaded the underwritten lot at or above IPO price - that is what the road shows, marketing, and commitments / subscriptions are for.  The losses will come only if they kept some of the IPO shares for their own trading book, which is voluntary and not contractual - generally not done these days as it is frowned upon by clients if the stock overshoots up after IPO. They may not make any money on the overallotment if the price is subdued beyond the exercise date but that is not underwriting.  I have never seen any of the big underwriters take a loss on debt or share public offering in the last 20 years.

p.s.:  the yahoo link does not say anything about losses for the underwriters - what am I missing?

[yogibearbull]

Comments are mine, not based on link. Underwriters have had only 3 trading days so far to unload inventory and that may not be enough.

Link is only for related "Recent news", especially how bad the stock is doing relative to $14 IPO price.

[Karen]

www.cnbc.com/2021/07/04/banks-earn-650-million-in-fees-and-stock-gains-from-ipo-flurry.html

[Deleted]

Karen,

Thanks for posting the article. According to the article, underwriters do not lose because of their fees.  And underwriters get stock purchase options so they don't lose on the stock going down. They don't own the stock, as someone erroneously posted.

From the article:
"In addition to advisory fees, underwriters also make money on IPOs by getting the option to buy stock at the offer price so they can benefit from the pop that typically ensues. Not all of last week’s offerings had big initial rallies, but they all led to gains for the banks that were in position to receive an allocation.

Even with Didi’s muted gains in its first three days of trading, the stock’s 11% rise means that underwriters are up $66 million if they exercise their options. The paper gains on SentinelOne sit at $46 million after that stock jumped 27%. Manufacturing marketplace Xometry climbed 58% in three days, producing potential gains thus far of $26 million, while airport security company CLEAR has delivered an increase of $34 million after jumping 53%."

[yogibearbull]

@deleted, did you sign up as "deleted". That is also the default name for those who leave the site and their old posts show up under "deleted". If correct, to avoid confusion, you may want to change your Display Name from Settings/Edit Profile/Personal. Attn chang

[Capital]

Jul 6, 2021 22:22:08 GMT yogibearbull said:

@deleted , did you sign up as "deleted". That is also the default name for those who leave the site and their old posts show up under "deleted". If correct, to avoid confusion, you may want to change your Display Name from Settings/Edit Profile/Personal. Attn chang

@deleted perhaps you should change your screen name to predeleted

[retiredat48]

OK, I'll be one of the first to step in and say: YES, CHINA SITUATION/TREND IS ADVERSE, AND IS A BIG DEAL FOR ME.

We have always known that "political risk" aptly applies to a communist country, especially China.  However, it has been muted last couple decades.  I own a China specific holding, and have some Southeast Asia Fund investments that include China.

The last six months continue to set off alarms, and raised some yellow flags for me.  Maybe even red flags.  Long story of course.  I am not confident Biden Administration in particular, or any president/USA Country can do much to forestall this. 

I won't be surprised to wake up someday and find that China has nationalized, or taken away USA citizen ownership of involved companies.  Yes, China had previously endorsed a strategy of marrying capitalism with State interests.  But now we have Hong Kong, muslim lack of freedom, aggressive econ strategies, increasing military and reach, goal to be world leader, etc.  "Didi" scenario a wake up call.  Standby to lose Tiawan.  Chinese companies already being shackled, and CEOs/major owners being controlled...including USA companies like Starbucks and NBA Basketball players.

I am surely not adding to any China investment, and will likely be pulling down/reducing some allocations/holdings.  Also advising my kids of same.

Remember that hammer and sickle stuff.  It is the "Peoples (working man) Republic of China; not the "Billionaires Republic of China".  (I read where China went from none, to over 600 billionaires in last half decade).  PRC also does not like making USA people wealthy!!

R48

[rhythmmethod]

retiredat48 , I somewhat agree with you. I sold my holding of MATFX, which has been very good to me. Still, my gut reaction is this will go through the spin cycle and come out in the wash. I'm not convinced they are in "cut nose to spite face" world yet. I was in Beijing Nov-Dec of 2019 teaching and living in the community. There are lots and lots and even more rich people there. But, there is definitely political risk, as you noted. Disclosure, I'm watching BABA closely and might make a move there.

PRC also does not like making USA people wealthy!! - But they may tolerate it if it makes them MORE wealthy??

[fishingrod]

It is a dog eat dog world out there. But without other dogs one is only eating one's self. Although that may be fine for a while. I believe the World and it's countries are realizing that it can not compete with itself alone. Whether the majority believe it not, it has become a very small world.

.....muslim lack of freedom, aggressive econ strategies, increasing military and reach, goal to be world leader, etc. , Sounds like the U.S.  Hmm.

www.youtube.com/watch?v=2jJjpJlEUhM

Fishingrod

[Chahta]

Not following you fishingrod.

[rhythmmethod]

Chahta, not fishingrod, but if I may offer a possibility...Some of us think (I'm sorry I can't help it, once I started) that looking with dismay at China's wrongdoings while not acknowledging those close to home may not be in the interest of advantageous longterm investing.

[retiredat48]

Jul 7, 2021 23:00:04 GMT fishingrod said:

.....muslim lack of freedom, aggressive econ strategies, increasing military and reach, goal to be world leader, etc. , Sounds like the U.S.  Hmm.

Fishingrod

Not following you either fishingrod??

--muslim lack of freedom...Where in the USA do we have internment camps, as in: "As of 2019, it was estimated that Chinese authorities may have detained up to 1.5 million people, mostly Uyghurs but also including Kazakhs, Kyrgyz and other ethnic Turkic Muslims, Christians as well as some foreign citizens such as Kazakhstanis, who are being held in these secretive internment camps which are located ..."

--aggressive econ strategies:  What is aggressive about Biden admin?  They want to pull work back home, like Trump did; we don't have a "belt and road" strategy like China.  Biden is like Bush in the World...go along to get along.

--increasing military reach:  We are not expanding military; we are pulling troops home, eg, Afghanistan

--goal to be world leader...we are and have been world leader...now slipping.  We are the reserve currency...not a threat to others, but someone is always number one.

R48

[anitya]

Please stop discussing in this thread morals and other things not directly related to investing. 

I wrote but decided not to post why we do not have the monopoly on morals and virtues to preach to others, not to mention China.

Let us please get back to discussing investing.

[Chahta]

Got it RM/F.

I think we are free to discuss, with civility, but I do not think it is best here. I would not be kind. It is wrong to judge other countries by your own standards since they judge you the same way. There can only be 1 USA but it is teetering.

There is one huge mistake made in life in general and worldwide; minding one's own business.

[fishingrod]

www.scmp.com/business/article/3133420/despite-delisting-concerns-number-chinese-companies-us-equity-markets

[anitya]

There is a recent thread on "Investing in China" at Armchair I thought some of you might be interested in reading. I must caution that a lot of Armchair threads end up being trash with bickering ideologies but this is too new a thread and still functioning -

armchairinvesting.freeforums.net/thread/1846/investing-china

P.S.: chang , not a recommendation but I say this with trepidation that may be open a thread for Politics ("Domestic and International Politics") so other threads can move more smoothly - no need to reply.