Chinese Stocks Delisting | What Happens When Alibaba is Delisted?

Chinese stocks like Didi Global, DIDI, are delisting from the U.S. stock market and share prices are plunging! Should you invest in stocks like Didi, Alibaba and Nio or are they too risky? What happens to your shares of Chinese companies when they delist and is there a short-term trading strategy for BABA to take advantage of the selloff?

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Didi Global announced today that due to pressure from the Chinese government, it would delist its stock from the United States and instead list to trade on the Hong Kong exchange. The news caused shares of DIDI to crash more than 17% and took other Chinese stocks down with it. Shares of Alibaba are down 7% and NIO is down more than 9% so far. Will the share prices continue to fall or are they too cheap to pass up?

Understand that even if these stocks are delisted, you will still own the shares. You still own the same number of shares in DIDI, BABA, NIO or XPEV and it’s the same company as it was before. The only difference is those shares are traded on the OTC Market, the over-the-counter exchange. You can still buy or sell your shares on most investing apps though some like Fidelity will charge an extra fee.

What often happens when a stock is delisted is the price crashes because institutional investors cannot hold shares. They sell out of their holdings and the stock falls. Since it’s still the same company though, that’s often a buying opportunity and it could be for these Chinese stocks as well. Alibaba is already ridiculously cheap and trades for just 2.8-times on a price-to-sales basis. That is a 42% discount compared to Amazon and the price-to-earnings on BABA is less than half that of the larger ecommerce giant.

Even if Alibaba is delisted and faces continuing pressure from the Chinese government, it is still a huge company with a strong future. Sales are growing at 30% a year, twice the annual growth for Amazon, and it is a global ecommerce leader. I expect Alibaba to calm the market by announcing it is not seeking to delist from the U.S. stock market. That could mean a quick rally in the stock price and shares could go even higher on a de-escalation of tension between China and the United States.

0:00 Chinese Stocks Delisting | DIDI, BABA, NIO, XPEV
0:08 Why are Chinese Stocks Falling?
1:21 What is the Law Causing Chinese Stocks to Delist?
6:21 How Does a Stock List on the Stock Market?
7:36 Why Does a Stock Get Delisted from the Market?
8:02 What Happens When a Stock is Delisted?
11:38 Will Alibaba Delist from the Stock Market?
12:57 Alibaba Valuation vs Amazon
15:25 Should You Invest in Alibaba?
16:41 Should You Invest in Chinese Stocks?
17:01 Will NIO Delist from the Stock Market
17:50 NIO Valuation vs Tesla

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.