US investors sometimes forget that July 4^th is just another day in the rest of the world. While we took a day off for the Independence Day holiday, other countries were hard at work. Over our long weekend, the Chinese government was making a move that shocked many US investors when it ordered Didi Chuxing’s (DIDI) app to be removed from app stores.

Last week, one of the more notable IPO stories was the listing of DIDI Global ADRs on the NYSE. The company raised over $4 billion by selling shares at $14/share. The listing did not exactly light the market on fire. The stock touched $18.01 briefly after opening but then closed at $14.14, just above its offering price. The stock fared better over the next two sessions, but hardly showed true enthusiasm, as we can see below:

DIDI 4 Day Chart

(Click on image to enlarge)

Source: Interactive Brokers

The ADR never really got going as a “hot issue” before the weekend’s news. The news is pushing the stock down by more than 20% since Friday, and about 15% from the IPO. Investors in the IPO must be feeling burnt. Even though there was some reporting that Chinese regulators suggested that DIDI delay its IPO, that would be cold comfort to investors who are facing losses today. 

Regardless of with whom the fault lies – either Chinese regulators or DIDI management — it is clear that someone did not have US investors’ interests at heart. Some investors are asserting that the Chinese government wanted to punish US investors, others are asserting that the investors became collateral damage when the Chinese government decided to crack down further on a high-flying company, and others are angry that the company went ahead and raised money while under a regulatory cloud. I will refrain from a decision as to who is correct here. I have no clarity into the decision process of China’s regulators.

Therein lies the problem for US investors in Chinese shares. There are risks that are unique to those investments, and the companies are subject to control by a government whose objectives may be at odds with those of foreign shareholders. We already saw China’s moves against Alibaba (BABA) and Ant Financial ahead of the latter company’s anticipated listing. It appears that the government considers it far more important to maintain control over data and intellectual property than profits accruing to shareholders. This morning’s news also reported that Weibo’s (WB) chairman and a state-owned firm are planning to take that company private. That took the stock over 10% higher before it was denied. The ADRs are still up about 5% because the story makes sense.WB is the dominant social media platform in China, and thus an enormous source of data. Why wouldn’t the Chinese government want to make sure that it has a stake in a company of that sort? And is the market correct in assuming that a takeover of WB would be on market-friendly terms?

The full ramifications for investors of China’s recent moves have yet to be digested. Until that is possible, it argues for investors to be far more risk-averse regarding Chinese shares. If one invests in a Chinese company, one is exposing himself to an extra layer of uncertainty from a government that has just shown that it may not have investors’ interests in mind when making its decisions. The Chinese growth story is compelling, as are many of China’s companies, but the investment climate in that country and its companies became much more uncertain today.