What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing today we're continuing our coverage of the now almost year-long government crackdown on chinese tech companies. Perhaps the worst hit tech company of this saga has been the ride-hailing company dd within days of them raising 4 billion dollars from their blockbuster ipo on the new york stock exchange, the stock price started dropping like a rock, as the chinese government temporarily banned new downloads Of their app, the government is becoming increasingly concerned about chinese tech companies ipoint on u.s exchanges. When a company lists on a u.s exchange, they expose themselves to scrutiny from the u.s securities regulators and may have to disclose sensitive information. Communist party officials were furious about dd's new york listing because the company had sensitive data which they may have to disclose to the sec after the government temporarily banned dd's app, it was pretty clear that their status as a us listed company wasn't sustainable the uncertainty around The situation caused the stock price to lose more than half its value.

Since the ipo on december 5th didi announced it would delicious shares from the new york stock exchange and re-list on the hong kong stock exchange. The stock immediately tanked almost 25 percent on the news. It has since recovered some of those losses, but still down roughly 14 in this video, we'll explain how the de-listing process works, whether the sharp decline in dd's share prices justified and what this all means for the future of other chinese companies listed on us exchanges. Dd is china's largest ride-hailing company.

By far you can think of them. Basically, as the uber of china in july of 2021, they decided to take advantage of high u.s stock market evaluations to list their shares on the new york stock exchange. U.S investors were quick to fall in love with the company and they raised 4.4 billion dollars at a valuation of almost 70 billion, but this success didn't last long within days the government banned downloads of dd's mobile app for alleged national security concerns. This ban remains in effect to this day, but how could a right handling company possibly pose a threat to national security? The concerns were raised by the cyberspace administration of china, which is the company's national internet regulator.

Since 2018, dd has been recording in-car audio of passenger trips. The purpose is to increase passenger safety by having recorded evidence if anything out of the ordinary happens during the trip. This means that the company has access to the conversations of everybody who rides in their cars, which could include government officials and other important figures within china. Theoretically, didi could have to turn over their data from their audio recording to u.s regulators because they're a u.s listed company.

This was the ostensible rationale for the government cracking down on them. The sec is mainly concerned with things like financial fraud, insider trading and market manipulation. The prospect of the us court compelling dd to hand over in-car audio data to the sec seems extremely remote, but for whatever reason, the chinese government has become extremely concerned about chinese companies listening on u.s exchanges. So what does it mean for dd shareholders? Now that stock will be delisted when the delisting happens, dd will simultaneously make a new listing on the hong kong stock exchange.

There are many chinese companies with dual listings on the new york and hong kong stock exchanges. Alibaba is one such example. When you adjust for currency conversion and the fact that new york listed shares represent eight ordinary shares, the prices on the two exchanges are almost exactly the same. Whether the stock trades in hong kong or new york doesn't really matter.

Both exchanges are open, so investors from all over the world can purchase them. The fact that dd will convert its shares to the hong kong exchange shouldn't impact the price, if anything, it's probably a good thing, once they're removed from the us exchanges. This will likely appease the chinese regulators, thus making them more likely to allow the company to relaunch their app. So then, why did shares fall 25 after the delisting news, according to reuters, part of this sell-off can be attributed to net selling pressures from individual investors.

According to the research firm vanda research, retail investors were big net sellers of dd shares after the d listing was announced. This is after being net buyers on most days over the prior month. According to analysts, gaia, como and peritone, most investors don't understand the delisting process and would prefer to just dump their shares. Even if it's for a huge loss, it's likely that many investors erroneously believe that their new york, blitz's shares will become worthless after the listing.

Another possible fear is that many popular retail brokerages, such as robinhood, do not support hong kong listed shares. So what happens? If you own a share of dd on robinhood according to robin hood's website, when a stock you own is delisted, you'll still be able to sell it. You just won't be able to buy additional shares. So, even though robinhood doesn't support trading of hong kong listed stocks, they will still allow you to sell your shares for whatever price it ends up trading at in hong kong and, as we explained earlier, there's no reason to believe that the hong kong valuations should be Materially lower than the new york valuations, it's still the exact same company.

This video isn't financial advice and i'm not saying that dd is a good investment. They still have a lot of issues with the chinese regulators. The point i'm trying to make is that the d listing itself is not a bad thing. It probably doesn't make sense for the share price to be down 14.

Just on this news, there are currently over 200 chinese companies listed on the new york stock exchange in nasdaq, including household names like e-commerce, giant alibaba, electric vehicle company neo and the country's dominant search engine baidu. With the chinese government cracking down on dd's ipo. There are serious fears that other us listed chinese stocks may be next in line. In fact, a broad de-listing of all chinese stocks is very much in the cards.

After the luck and coffee debacle, then president donald trump signed the holding foreign companies accountable act into law. This law states that u.s listing companies are required to have their financial audits inspected by the u.s regulators. Chinese companies do have their financial statements audited by major accounting firms such as kpmg or pwc, but the us regulators essentially want to audit the auditors to make sure that everything is above board. The u.s regulators already do this for publicly traded companies based in the us and most other countries.

However, china does not allow this. They view it as a breach of their sovereignty for a foreign governance regulator to look into the books of chinese companies. Even if these companies are listed overseas, the holding foreign companies accountable act has a three-year grace period before non-compliant, companies are de-listed if biden and qi can't strike some sort of compromise before 2023. All chinese companies will probably be de-listed from the u.s exchanges and with increasing tensions around taiwan and other issues.

The chances of a deal seem pretty remote for the past two decades. China's internet giants have expressed a strong preference to listen to new york, as opposed to domestic chinese exchanges. Part of this is because the american capital markets are perceived as being more developed, making it easier to find buyers for multi-billion dollar ipos. Also founders may want to sell their shares in us dollars that makes it easier for them to bypass capital controls and take their wealth outside of china.

President xi has been trying to increase development of the country's domestic capital markets. To this end, they just opened up the brand new beijing stock exchange in the past few months going forward. The government would prefer chinese companies to list on domestic exchanges because of the country's strict currency controls. Most ordinary chinese investors cannot buy shares listed on foreign exchanges.

This means they can't buy shares in alibaba, which is listed in new york or tencent, which is listed in hong kong. In fact, not a single one of the chinese tech giants is accessible to domestic investors. Imagine if america's mega cap tech stocks like facebook, google and tesla could only be traded by non-us investors, that's basically what's happening in china. It's likely a major reason.

The government wants to curb foreign listings. It's very likely that other chinese companies will be forced to de-list from u.s exchanges over the coming years. In fact, alibaba baidu and jd.com have all opened dual listings in hong kong to prepare for this. When this happens, it's not necessarily a bad thing, because you can still sell your shares on the hong kong market.

If you own shares of chinese companies or any other company that faces the listing risk, don't panic, sell your shares? Do your own research and consult with a professional to understand the specifics of the delisting process, because it's not always as bad as it seems at first all right guys that wraps it up for this video? What do you think about dd's d listing? Do you think the 25 sell-off was an overreaction? Let us know your thoughts in the comment section below as always. Thank you so much for watching and we'll see you in the next video wall street millennial, signing out.