Didi extends slide as Beijing clampdown sounds alarm for US-listed China companies

On Wednesday, China fined internet companies including Didi, Tencent Holdings Ltd and Alibaba Group Holding Ltd for failing to get approval for earlier merger and acquisition deals.

US-listed shares of Alibaba and Tencent Music Entertainment Group were last off 1.1 percent and 2.4 percent, respectively.

Including Didi, the largest US listing by a Chinese company since 2014, a record USD 12.5 billion has been raised so far in 2021 from Chinese firms listing in the United States, Refinitiv data shows.

In a sign of nervousness among investors about Didi, index publisher FTSE Russell also warned that it would not include Didi's shares in its global equity indexes if trading is halted in Wednesday's session.

As of 3:15 pm EDT, trade of Didi shares had not been halted.

"For Didi, the situation is bleak, but for Chinese companies preparing to list in the US it may be even bleaker," said Samuel Indyk, senior analyst at uk.Investing.com.

Republican US Senator Marco Rubio last month had called for the US Securities and Exchange Commission to block Didi's IPO because China does not allow auditors to conduct the same oversight that other US-listed companies face.

"Allowing Didi, an unaccountable company based in China, to list on the New York Stock Exchange was reckless and irresponsible," he said on Wednesday. "Beijing’s recent crackdown on the company only further underscores the risks posed by Chinese companies to US investors."

In June, the US Senate passed a bill led by Senator John Kennedy, which would pressure China by requiring foreign companies to hasten their compliance with Public Company Accounting Oversight Board audits. The bill still needs to pass in the US House of Representatives.

"The drop in the value of Didi shares further highlights that the Chinese Communist Party is perhaps the biggest threat facing US investors today," an aide to Kennedy said.

Analytics firm S3 Partners warned of another surge in short-selling of US-listed Chinese companies as a clampdown by Beijing drove a third straight day of selling of ride-hailing giant Didi.

Short interest in the group has fallen to USD 43.5 billion from USD 50.6 billion this year, while short interest as a percentage of float fell to 3.81 percent from 5.67 percent, reflecting a closing out of some positions that were in the red after a market rally in January and February, Ihor Dusaniwsky, S3's managing director of predictive analytics, said in a report.

Invesco Golden Dragon China ETF, which tracks US exchange-listed companies that are headquartered in China, has lost a third of its value from its February high, meaning short sellers who bet against the index over that period should have profited.

"We’ve been hearing the back and forth with US and China with tougher regulations on IPOs," said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina.

"It’s one small part of two superpowers disagreeing on many things," Detrick added. "It’s a fallout from a deeper divide."