Didi offers ‘sell on Friday’ lesson to hedge losses as China humbles tech billionaires, investors in latest regulatory offensive

·4-min read

China’s July 4 crackdown on Didi Chuxing has signalled the start of a new regulatory offensive against tech companies, challenging market views on the extent policy tightening. That Sunday rebuke suggests stock investors should consider trimming their bets on Fridays to avoid weekend shocks.

From the US-China trade war to Donald Trump’s Twitter bombs and China’s central bank policy edicts, many of the headline news events on weekends in the past two years have preceded steep market losses. As China shows tech billionaires who’s the boss, UBS Asset Management said the curbs are not over yet while CCB International predicted more losses ahead.

“There is plenty of regulatory uncertainty,” said Hong Hao, managing director at Bocom International Holdings in Hong Kong. “The review is just starting and will be ongoing. In the near term, the uncertainty will make people think twice” about buying or adding to their positions, he added.

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Unwinding trades on Friday July 2 would have helped investors avoid a US$67 billion slump in the Hang Seng Tech Index members on that day alone, which snowballed into US$155 billion in the ensuing week. Didi Global, the US-listed entity, plunged 20 per cent on the next trading day in the US.

Zhuang Rongwen, Minister of Cyberspace Administration of China, seen at the World Internet Conference in November 2020. Photo: Reuters
Zhuang Rongwen, Minister of Cyberspace Administration of China, seen at the World Internet Conference in November 2020. Photo: Reuters

Some of the biggest sell-offs this year included a 5.7 per cent plunge on February 26, and a 2.2 per cent decline in two early weeks of May, according to the Post’s calculations. On average, investors avoided a 0.6 per cent loss if they sold Chinese tech stocks on Fridays.

Last week was no different. The Hang Seng Tech Index tumbled 5.9 per cent in the biggest pullback since February. The ATM trio – Alibaba Group Holding, Tencent Holdings and Meituan – retreated by 6.3 to 8.2 per cent. The index may have another 8 per cent to fall before the sell-off eases, according to CCB International.

Other seismic episodes in recent years included the US announcements of tariffs on Chinese goods, the assassination of Iran’s top general and Trump’s market-hitting tweets.

Beijing has now required all tech companies to seek cybersecurity review before selling shares in other countries. The Cyberspace Administration of China followed up on its attack on Didi Chuxing by probing other firms. The central bank separately warned it would scrutinise online-payments operators for anti-monopoly practices.

In Didi’s case, the government invoked the national security law for the first time in its tech crackdown. This is interpreted as an inauspicious sign for the market, with more measures to come. This should induce a reassessment of the growth outlook for apps that have dominated every facet of daily life in China, according to UBS Asset Management.

“The government will push ahead with reforms concerning data security, antitrust and the overall business environment,” said Luo Di, the firm’s portfolio manager in Shanghai. “Problems from these fast-growing sectors have begun to surface now after years of expansion. The [regulatory] curbs are not over yet.”

Pre-emptive selling on Fridays has helped Chinese investors hedge against weekend policy surprises in the past. Unlike most global central banks, the People’s Bank of China does not publish its policy meeting schedule, and typically issues its directives late on Fridays or at weekends.

Beijing’s choice of unveiling major policy changes on weekends may be well-intentioned, perhaps to give investors more time to digest and evaluate the implications. US investors will have to weigh the risks of owning [Chinese] American depositary shares at a time when tensions between Beijing and Washington remain elevated, according to BCA Research.

“The incident highlights that Chinese authorities’ clampdown on domestic new economy companies is clearly not over,” analysts at BCA said in a report on July 7. “All global investors will have to balance the allure of China’s vast addressable market with the possibility that officials may reshape company prospects at the stroke of a pen via the imposition of regulatory strictures.”

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