Why shares of DiDi Global, Kanzun Limited and Full Truck Alliance surged today

What happened

Shares of several Chinese stocks soared today after media reported that months-long investigations significantly hampering their growth may soon end.

Part of China’s largest carpooling app, Global DiDi (HAVE I GOT 40.54%), had jumped nearly 50% as of 10:26 a.m. ET today. Meanwhile, the actions of the online recruitment firm Kanzhun Limited (BZ 23.03%) had jumped more than 23% and shares of the freight platform Complete Truck Alliance (MMD 15.14%) increased by almost 20%.

So what

Last July, the Chinese government banned DiDi from Chinese app stores after the company “seriously broke laws by illegally collecting and using personal information.” The order came just days after DiDi made its initial public offering on the New York Stock Exchange (NYSE), as Beijing took a tough regulatory approach to Chinese tech companies.

Image source: Getty Images.

The crackdown has significantly hurt DiDi’s bottom line, with the company reporting a growing net loss equivalent to $7.42 billion in 2021 after reporting a loss of $1.6 billion in 2020. DiDi shares have plunged and even after today’s rally, they are still down more than 82% since their IPO. .

Additionally, DiDi has since elected to exit the NYSE and list its shares in Hong Kong. When DiDi first went public in the United States, Chinese regulators were unhappy, believing that listing could lead to the disclosure of sensitive data to foreign countries like the United States.

In a report this morning, The Wall Street Journal, citing unnamed sources, reported that the Chinese government is preparing to end its investigation into DiDi as early as this week and allow the DiDi app to return to Chinese app stores. It will also allow DiDi to start adding new users again, which is obviously essential for a fast-growing tech company.

Along with easing DiDi, the Chinese government is also reportedly preparing to leave other previously banned apps on app stores, which will also allow them to start adding new users again. These companies include Kanzhun and Full Truck Alliance, which were pulled from app stores for similar reasons as DiDi around this time last year as well.

Now what

Last year, the Chinese government took a very tough regulatory stance on overseas-listed Chinese companies and high-growth Chinese tech companies, largely due to data issues.

But the resurgence of COVID-19 earlier this year led the Chinese government to order shutdowns in major cities across the country and put pressure on gross domestic product (GDP) growth targets set by the Chinese government.

With many banks lowering their outlook for Chinese GDP growth in 2022, the Chinese government has taken a much more receptive stance towards Chinese tech stocks in order to stimulate the economy.

At first, many were unsure if it was just talk, but recently the Chinese government has also started to take action. He has begun working with the US government on a long-running audit dispute that, if passed, will prevent many Chinese stocks listed on US exchanges from being delisted. The Chinese government has also spearheaded stimulus initiatives and has now started allowing some companies to roll back app stores.

I’m definitely starting to believe that the Chinese government is easing its stance and creating a more business-friendly environment, which is great for Chinese equities. DiDi will likely lose some liquidity after its delisting from the NYSE, but the move could also appease Chinese regulators.

Also, with all of these stocks all trading at depressed levels, I think it’s time to start taking a look. Before investing, also be sure to do your due diligence on the regulatory landscape in China, as it can have a strong influence on Chinese stocks.

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