Oil stocks, Chinese tech in turmoil, in wild Wall Street Wednesday
WASHINGTON – Wednesday looked good at this morning’s opening bell. But stocks quickly succumbed to at least two major negatives. And maybe more. The oil patch found itself quickly immersed in chaos. That was due to the failure of OPEC+ to communicate a coherent policy for increasing supply. But later, oil whipsawed on word the UAE was open to doing so. Meanwhile, China’s continuing punishment of newly IPO’d DiDi Global (NYSE:DIDI) shares had stocks in the Chinese tech sector in turmoil as of the noon hour.
Investors in oil stocks and refineries continued to suffer this week after watching that sector wobble last week in pre-holiday trading. Nothing in the market can stand uncertainty for long, and that’s certainly been the case here as many an oil stalwart, including our own longtime successful investments in mega-refiner Valero (NYSE:VLO) and big oil and gas firm EOG (NYSE:EOG) came under pressure.
With Valero having lost over 10 points during the recent squall, we reluctantly decided to take profits Wednesday morning in this, the longest-held of our oil stocks. We continue to hold most of our EOG position, however, having unloaded a few of our shares a couple of weeks back during the previous oil patch squall in June. This has been an uncommonly profitable position, so we’re unwilling to part with it unless the shares are indeed ready to tank.
The Chinese tech puzzle
After oil stocks comes the Chinese tech puzzle. China has been cracking down hard on its tech sector for at least a year now as only a Communist country can do. Previous People’s Hero Jack Ma of Alibaba (NYSE:BABA) fame found himself assaulted on all fronts last year as he tried to IPO Alibaba’s financial subsidiary, Ant Group, after having incautiously spoken against the Chinese regulatory regime.
Every bit an equivalent of PayPal within the People’s Republic, the Chinese government’s stifling of the IPO cost Ma (and Alibaba) a massive financial and perceptual migraine and put Ma in Beijing’s permanent target range. The matter remains unresolved even as Ant’s range and online payment / digital wallet portfolio continues to grow in both China an numerous other countries.
The mess surrounding DiDi’s US IPO. And the consequences…
Among other reprisals against the company for IPOing its shares in the US, the Chinese government has effectively canceled the company’s Chinese mobile app, at least for now, a major blow to the company’s business going ahead.
“Mobility technology platform DiDi Global Inc. (DIDI) recently announced that it will remove its “DiDi Chuxing” mobile app from China as per the directions of the Cyberspace Administration of China (CAC). The company’s global operations are likely to remain unaffected.
“CAC passed the orders as it believed that DiDi was collecting personal information of its users, which was in violation of Chinese laws and regulations.
“Now that the app is no longer allowed to be downloaded in China, the company expects its revenues to take a hit in the country.”
The government canceling a major app? Must be a Communist government, right?
A “hit”? No kidding. Gives a brand new meaning to the term “cancel culture,” doesn’t it? Imagine Washington ordering the Facebook and Twitter digital apps from all iPhones and Android devices. Immediately. (Actually, that might be something to think about.)
Like Facebook and Twitter, DiDi collects bunches of valuable user info via that app. Knowing how Communist governments work, we’re sure that the app will return at some point. But under the stipulation that Didi share that user data with the government. Kind of chilling, actually. (But then, we have the NSA…)
At any rate, now, with the squashing of DiDi’ Global’s post-IPO shares, this massive Chinese answer to the previously US-dominated Uber-verse looks too dangerous to invest in. The stock currently hovers in the $11 dollar range, having plunged quickly from its $14 IPO price, whacking all the retail and institutional investors that got in on that popular issue last week.
The danger of owning Chinese tech stocks in the current political moment
We’ve traded in and out of several Chinese stocks over the last year or three, primarily in shares of Alibaba and the Chinese Composite Market ETF labeled GXC (NYSE:GXC). Our trading results have been mixed due largely to exogenous events involving Beijing’s various levels of interference. So we’ve stopped trading in Chinese issues altogether.
Given the constant temptation of Beijing to screw around with its major companies, lest they gain too much influence at the government’s expense, we’ve finally made the decision to stay out of this sector indefinitely, even though timing and good info can make a number of these stocks a good trade.
Even with this, however, the constant threat of government tampering in the corporate sector is just too much risk for us, particularly since the Ant debacle and the recent punishment of DIDI’s US IPO. So we’re out. And while we strive not to actually give advice in this column, we think you’d ought to consider giving Chinese tech stocks a pass, at least for the present.
Elsewhere in the market…
That’s about it right now for oil stocks and Chinese tech issues.
Meanwhile, bond yields and bank stocks continue to tumble. Why? The market’s perception that interest rate hikes remain off the table indefinitely is part of the reason. Why interfere with the Fed’s current wide-open inflation targets? In a related trade, utilities and mortgage REITs also continue to take it in the ear.
Sentiment charts look iffy
More problematic, Tuesday’s closing McClellan Oscillator chart ominously declined on a generally up day.
More ominous, today’s VIX volatility chart indicates this previously benign measure has begun to tick back up. That reveals increasing volatility and risk in current market trading patterns.
As a result, we’ve lightened up again in our portfolios. We still find it pretty dangerous out there. Techs, in particular, are increasingly over-valued, although major techs continue to perform well this week. For now.
The Wednesday Wrap
So maybe it’s just better to get back in a substantial cash position again. That’s what we’re doing today. We’re scooping up some nice profits while taking small losses in underperforming stocks. We just have to keep a close eye on this market.
With Washington’s first Presidency by Committee trying to call the shots in this divided country, and with our friends and enemies knowing full well that America is currently functioning like the Headless Horseman, it’s really hard to remain bullish when our markets remain just one step behind a crash if and when the Committee makes a foolish international or domestic move.