U.S.-listed shares of China companies drop on fears of more crackdowns

China extends cybersecurity reviews beyond Didi
China extends cybersecurity reviews beyond Didi

The U.S.-traded shares of prominent Chinese companies were under pressure on Tuesday after the Asian country's officials launched a cybersecurity review of Didi, fueling concerns about government risk to Chinese stocks.

Shares of Tencent Music Entertainment fell more than 9%, while,, Alibaba and agriculture tech stock Pinduoduo also slid.

U.S. traded stocks of Chinese companies

Shares of Didi fell 20% in after the Chinese government blocked the company's app from being downloaded. The move appears to be part of a broader crackdown from the country, and a Chinese cabinet official said that regulators are adopting new measures to monitor cross-border data security and potential securities fraud, according to Reuters.

The action by Chinese regulators comes less than a week after Didi listed its shares in the U.S. Two smaller recent listings — Full Truck Alliance and Kanzhun — are also under review by regulators and saw their shares fall sharply on Tuesday.

Concerns about investing in Chinese stocks have grown in recent years, with former president Donald Trump attempting to ban investment in companies with ties to the Chinese military and U.S. regulators pushing for greater scrutiny of some foreign listings.

Investment firm Oppenheimer said in a note that the U.S. efforts for greater oversight could be a cause of these security reviews.

"We believe these cybersecurity reviews are likely because of China's concerns around leaking sensitive data to foreign nations as the U.S. passed legislation that would require Chinese companies listed on U.S. exchanges to allow the U.S. Public Company Accounting Oversight Board (PCAOB) to check their auditors' work, or delist from U.S. exchanges," the note said.

Bank of America analyst Eddie Leung said in a note that the government data review could be an ongoing risk factor for investors.

"Geopolitical factors may play a role, and a material possibility exists that the data security inspection becomes a standard procedure for larger Chinese Internet companies planning overseas listings in the future," the note said.

One exception to the struggles on Tuesday morning was Weibo, which jumped more than 6% after Reuters reported that the company's chairman was negotiating a deal to take the social media company private.

—CNBC's Michael Bloom contributed to this report.

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