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Didi Stock Up 50% On Relaxation Of Chinese Government Controls

Tim Worstall
Tim Worstall trader
Updated 6 Jun 2022

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Key points:

  • Didi stock is up 50% premarket
  • The WSJ reports that it will be freed from constraints on new business in China
  • That still leaves whether the NYSE quote will stay or not

Didi Global (NYSE: DIDI) stock is up 50% and more premarket as the Wall Street Journal reports that the Chinese Government is to relax regulations on the company acquiring new business. This is a useful reminder that growth stocks really do, very heavily, depend upon the continuance of growth for their valuation. In the absence of even the legal ability to grow their stock prices tumble.

Didi stock's time on the NYSE has not been wholly beneficial to stockholders – to put matters mildly. Since joining the market back in August last year there's been an 87% decline in the Didi stock value. Part of this is, of course, just the more general worry over tech stocks in a time of rising inflation and interest rates, so too the more specific worries about ride-hailing companies. But possibly the worst issue for Didi has been that the Chinese government instigated an investigation into the company only days after that IPO.

The biggest issue there was that some 25 apps offered by Didi were taken off the servers in China – effectively the company could gain no new business, only service that it already had. The claim was that this was about cybersecurity but given the way the CCP likes to manage the economy who knows what the true issue was.

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There's also that point that Didi has been ordered to delist from the NYSE and has also found it very difficult indeed to relist in Hong Kong – running into government reluctance again.

So, the WSJ story is that this investigation into Didi is to be concluded and that the company will be allowed to offer apps for download again, to tout for new business, and so on. Whether this will mean being able to retain the NYSE quote is as yet unknown, as is whether a Hong Kong one can go ahead.

As far as we know at the moment Didi expects to announce a date for the NYSE delisting, which would take effect 10 days after issuance. But it hasn't been issued as yet.

Again according to the WSJ report it looks like Full Truck Alliance (NYSE: YMM) will also be freed from restrictions and Full Truck stock is up 25% premarket. So too is Kanzhun (NASDAQ: BZ) stock up 20% on inclusion in that list of companies to be freed from those restrictions.

As to the future value of Didi stock that depends upon the value we put on each part of the decision tree. Don't forget that this 50% rise is off the back of simply a newspaper report that Didi will be allowed to take new business again. The news of confirmation of this could boost it further. Or, of course, perhaps it's buy the news and sell the fact again. Then there's that problem over the market quotation. Will this freedom mean that Didi can keep its NYSE quote? Or will it still have to abandon it and try for a Hong Kong one? Will that even be allowed?

There are so many moving parts to a Didi stock valuation that to be precise about what it will be is not possible – but then that's what makes markets, differences of opinion.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.