Share Prices & Company Research

News

13 December 2021

Redmayne Bentley Market Round Up

In yet another blow to foreign investors, this week the Chinese Government announced further restrictions on Chinese companies using a Variable Interest Entity (VIE) structure to list on overseas exchanges, such as New York and Hong Kong. Since their rise to prominence in the early noughties, VIE vehicles have provided a loophole for companies to utilise foreign capital and exploit more liquid and globally recognised marketplaces, like the United States. Well-known ecommerce platforms such as Alibaba have been great beneficiaries of VIEs and many saw their market value double before the Chinese Government began their programme of restrictions on such listings.

Chinese ride-hailing company Didi announced on Friday that it would begin delisting in the US and prepare to go public in Hong Kong instead. The official statement says that its board has authorised the delisting in New York of its American Depository Shares (ADS) while ensuring that they will be convertible into freely-tradeable shares of the company on another internationally-recognised stock exchange.

The US listing of Didi has been mired in scandal since day one when the company went public back in June of this year raising US$4.4bn. Its US initial public offering (IPO) was the biggest listing of a Chinese company in the United States since Alibaba back in 2014. Just days after the IPO, the Chinese regulators ordered that Didi’s app be removed from Chinese app stores, while they also banned the company from signing up new users and announced an investigation into the company’s cyber security practises. This regulatory crackdown is an ongoing situation meaning the company still cannot sign up new users, while the Government also ordered app stores to remove 25 of Didi’s other apps. The stock went public at US$14, and the shares have more than halved in value since then, trading at around US$6.50 at the time of writing.

While all this seems alarming to those invested in Chinese stocks, it does not close off the region to investments altogether. It does indeed close the door for the average retail investor, though at this time foreign investors can utilise Qualified Foreign Institutional Investor Funds that are abundant in the UK marketplace. The concern, though, is that the rug could one day be pulled from these institutions too. Never say never.

In the UK, the Bank of England (BoE) is not expected to raise its base rate amid recent concerns over the new COVID-19 variant, Omicron. Analysts expect a majority of the Bank of England’s Monetary Policy Committee members to decide in the next meeting, scheduled for 16th December, to thoroughly evaluate the implications of Omicron, thus leaving the rate at an historic low of 0.1%. Unlike its US counterpart, which has emphasised on tapering, the BoE is focused on ensuring the economic recovery remains strong. Its Monetary Policy Committee has been cautious and has not given public statements as yet. It is understandable for the Committee to be cautious as initial rate rise sends a big signal to market participants and reversing a previous decision may dent the credibility of the BoE. The only remaining option is to wait and watch announcements that will be made by the Committee in the next meeting.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.

Redmayne Bentley Market Round Up
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