What’s Going On Here?

Didi is back in the Chinese government’s crosshairs, just days after the ride-hailing app pulled off one of the biggest US initial public offerings (IPOs) of the past decade.

What Does This Mean?

The Chinese government – which has had run-ins with Didi before – ordered the country’s app stores to remove the ride-hailing giant over the weekend (tweet this). It says it’s a matter of national security: Didi has access to hundreds of millions of Chinese customers’ personal information, while counting major international companies (like Uber) among its shareholders.

It’s not the only one: other US-listed Chinese companies – including online recruitment company Kanzhun and truck-hailing firm Full Truck Alliance – were caught up in the crackdown too. And the message to everyone else was loud, if not necessarily clear: any company needs to make sure customer data is “secure” – every bit as vague as it sounds – before looking to raise money or find investors abroad.

Why Should I Care?

For markets: Cue the ripple effects.
This was the next episode in a long-running series of crackdowns on Chinese tech firms, so the news sent all their stocks tumbling on Monday – even leading to an almost 4% drop for Tencent. And since Didi is one of the biggest investments in SoftBank’s portfolio, the Japanese conglomerate saw its shares fall more than 5% too.

The bigger picture: So much for easy money.
Chinese firms that trade on US exchanges also now have to let American authorities audit their accounts, or else risk being delisted. But with China having banned them from doing just that, it might only be a matter of time before the US makes good on its threats. That’s probably worrying the 30-plus Chinese firms that raised a record $12.4 billion on the New York Stock Exchange in the first half of this year alone – not to mention all the other would-be stock market debutants that want their own stateside cash injection.

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What’s Going On Here?

When it comes to forecasting stock returns, there are more than a dozen models competing for the title of “world’s best predictor”.

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In fact, it historically predicted the S&P 500’s future 10-year returns better than any other valuation metric – think price-to-earnings ratio, CAPE, and the Fed model, to name a few.

Charm Offensive

What’s Going On Here?

The bidding war over Morrisons intensified on Monday, as company after company vies for the eligible British grocery chain’s affections.

What Does This Mean?

This all kicked off late last month, when Morrisons – which is in a flourishing ecommerce partnership with Amazon – rejected a $7.6 billion takeover bid from a US private equity firm, saying it “significantly undervalued” the business. Then, over the weekend, it agreed in principle to an $8.7 billion offer from a rival group led by SoftBank-owned Fortress Investment.

But on Monday, another private equity firm – Apollo Global Management – mentioned it was thinking about making Morrisons an offer of its own. Clearly it sees a lot of potential in UK grocery store chains: the US-based investment giant was beaten in its bid to buy rival grocery chain Asda last year. And investors must do too: the announcement sent Morrisons’ stock surging 5% beyond Fortress’s offer price on Monday.

Why Should I Care?

For markets: Morrisons might be a bargain.
The one-two punch of Brexit and the pandemic has had a serious impact on certain British companies’ valuations, which might be why the total value of deals struck by UK private equity firms is at its highest since 2007. Those firms are particularly keen on grocery chains, which have been benefiting from a pandemic-driven surge of in-store and online shopping. In fact, Fortress’s proposed takeover of Morrisons would be the biggest buyout of a British public company in over a decade – and it could get bigger still if other companies push the bidding up even higher.

The bigger picture: Private equity thinks bigger.
Private equity firms don’t just aim to extract value from companies’ operations. In Fortress’s case, it’ll be eyeing up Morrisons’ property portfolio: the retailer owns 85% of its 500-odd stores and fulfillment sites, and that real estate alone is worth around $8 billion – more than the company’s total market value when news of the initial takeover attempt broke.

You might also like: How private equity firms make money.

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