Didi’s $1 Billion Fine Brings Potential End to Regulatory Cycle | ETF Trends

Chinese ride-sharing company Didi will purportedly be fined $1 billion by Chinese regulators, sources close to the matter told the Wall Street Journal, and of greater note, will be able to resume normal operations without restrictions.

These same sources have said that the Chinese government will allow Didi to begin adding new users and get back to business unimpeded. The company brought in $27.6 billion in sales in 2021. The fine equates to about 4% of that. With the app being restored to app stores in China, Didi is finally able to put the regulatory chapter behind it.

“While Didi’s fine sounds like a big number, it is only 4% of 2021 revenues. More importantly, it allows the company to move forward and explore a Hong Kong listing. We believe that as investors recognize this concern is behind us they are apt to raise their stakes in the companies,” said Brendan Ahern, CIO of KraneShares, in a communication to Vettafi.

Didi is reported to be looking to re-list in Hong Kong, though as of now there is no filing. It’s part of the broader pullback of Chinese companies to Hong Kong markets because of the delisting risks from the Holding Foreign Companies Accountable Act in the U.S. While some headway is reported to have been made from the Chinese side, there remains uncertainty and no official word on an agreement that would prevent the delisting of Chinese companies listed in the U.S. in the next two years.

The fine is a bookend to the volatile regulatory year in China that began last summer with the technology sector and has caused valuations to plummet over the last 12 months. The regulations, while causing temporary setbacks for the sector in the last year, have worked to establish a healthier foundation and business practices that prevent monopolistic tendencies that the internet sector was fraught with. It’s part of the growing pains of a rapidly developing technology sector that many more established countries have had to undergo, creating data privacy protections for users while expanding access across the technology ecosystem.

Accessing China’s Potential Technology Sector Recovery

“Our concerns on China’s internet regulation have largely diminished since the user data and user protection laws went into place late last year,” Ahern explained. “The China internet space offers attractive valuations relative to US technology companies which face the additional headwind of rising interest rates while China moves toward an easing cycle.”

KraneShares offers a variety of ETFs that provide exposure to China’s technology sector, home to some of the largest growth stocks in China.

  • The KraneShares CSI China Internet ETF (KWEB) offers exposure to some of the biggest companies within China’s internet sector. This includes companies that develop and market internet software and services, provide retail or commercial services via the internet, develop and market mobile software, and manufacture entertainment and educational software for home use.
  • The KraneShares Hang Seng TECH Index ETF (KTEC) offers exposure to internet stocks, e-commerce companies, fintech firms, and other tech-related companies. KTEC tracks the 30 technology companies in Hong Kong’s tech sector with the highest free float market capitalization and invests primarily in China H shares — meaning shares of stocks that are incorporated in mainland China and trade on the Hong Kong Stock Exchange.
  • The KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ) is a fund that targets consumer technology within emerging markets. KEMQ is structured to ensure diversification because of its limitation on country inclusion (one country can only account for 40% of the fund), with a maximum holding weight of 3.5%. The fund focuses on internet retail and e-commerce growth in 26 emerging market countries, including China, and has an expense ratio of 0.59% with a fee waiver that expires on August 1, 2022.

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