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Chinese stocks continue to fall amid Didi probe in China

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On Thursday, Chinese companies listed in the U.S. continued to extend declines following China’s crackdown on ride-hailing app Didi last weekend. Julie Hyman, Brian Sozzi and Myles Udland discuss what the move means for the Chinese tech sector going forward.

Video Transcript

MYLES UDLAND: Let's talk a little bit more about one of the stories that's underneath the surface of the index sell-off and has really been a leading indicator here. And that's what's happening with China-based US-listed companies. Of course, Didi at the center of this. Company came public one week ago today in an IPO where it raised about $4 billion. Shares this morning of Didi are off about 5% and the stock now trading under $12 per share, so down more than 30% from where the company was priced when it went public.

And they are not the only China-based company that trades in the US that's seen their stock under pressure. Shares of Baidu, JD.com, Alibaba, they're all under pressure this morning, down more than 2%. And Julie, it continues-- or we continue to see new developments in the regulatory future for these businesses. I know Jared caught our attention with just sort of his personal view that maybe these companies won't be listed on the market in some years time. But the way that these businesses are regulated, both by US and Chinese regulators, seems almost certain to be changing in the coming months and years.

JULIE HYMAN: Right, on the US side, there has been the suggestion over the past few years that Chinese firms that list in the US be held to US auditing standards. That's something that bipartisan members of Congress have pushed for. On the Chinese side, we're not exactly sure what is going to happen. We know Chinese regulators, of course, have pulled the Didi app off of Chinese app stores and platforms, right? And we know that there is some dissatisfaction on the part of the Chinese authorities.

The official line is that we cannot have-- there cannot be a large foreign ownership of Chinese-based entities. But Chinese companies have gotten around that through various other types of legal entities over the past several years, Didi and many of the other-- basically all of the other US-listed companies that are based in China included. So are Chinese regulators going to change that for existing listings, ones that are already public? Are they going to change it for new ones? We don't exactly know. But we know there's dissatisfaction.

So that brings us to Didi, which, of course, just listed in the US on July-- on June 30. The shares have fallen. And there are a lot of questions about what Didi's management knew about the Chinese dissatisfaction, how it was going to affect the company. One of the people asking those questions is now not a Chinese regulator but a US regulator-- or a US Congressman, I should say-- Chris Van Hollen, a senator from Maryland. And we've had Republicans like Marco Rubio asking these questions as well. Van Hollen saying in a statement to CNN that the SEC should be looking into the situation with Didi in particular.

So there are just a lot of questions for investors about what is going to happen next on both sides. And that cloud is certainly affecting that company, as well as other Chinese companies. We had what looks like the first Chinese IPO pulled, or delayed at least, because of all of this. It's a company called LinkDoc Technology, which is a medical tech company. So definitely a lot of questions. And as we know the old saw goes, the market doesn't like uncertainty.

BRIAN SOZZI: Right, Julie, and you put it really perfectly there with a dark cloud. It's not just hanging over Didi. To your point, it's hanging over the entire space. And I'm looking at the Invesco Golden Dragon China ETF on the Yahoo Finance platform. Some of that ETF's top holdings include Nio, JD.com, Alibaba, Baidu, Netties, Xpeng, who we'll talk to a little bit later on this show. That ETF is down about 15% over the past three months.

So Myles and Julie, we're not seeing institutional investors come in here and try to pick the bottom here. And actually, in fact, that ETF-- you see it there on the screen-- is-- looks like it's going to break through-- could break through below today the mid-- or actually late-- May low that it did see, which is, obviously, not a good sign to see. But we're just not seeing anyone trying to pick a bottom in these stocks until likely sentiment improves. And we're not seeing that yet.

MYLES UDLAND: Yeah, it's-- you know, I think when you see these moments where you have a broad market sell-off underneath the surface, again, there's always individual points of pain. And we're going to talk about the meme trade, which is under pressure as well, in the next segment. But it's been-- you know, I don't really think this is a canary in the coal mine or whatever. People love to use that. Oh, this led first, and now we've seen the market follow. I'm not sure that Didi facing regulatory pressure was necessarily a big trigger for a market that was already being held up by a few big cap tech names.

But in these moments of pressure, you kind of look around and you say, well, that certainly didn't help. And I think we-- I kind of have the feeling around that story for this market, or at least, what today's market appears to be giving us. But, you know, as you mentioned, stocks at a record high yesterday. So, you know, let's slow the roll maybe on markets in turmoil just a little bit.