What happened
Shares of new IPO Dada Nexus Limited (DADA 0.55%) were going up on Thursday, after a well-known player was revealed as a major shareholder. As of 11:45 a.m. EDT, the stock was only up 5%. But it had traded 14% higher earlier in the day.
By itself, perhaps the news wouldn't be enough to move the stock very much. But Chinese companies are under increased scrutiny these days. Gaining this shareholder may give investors confidence in Dada Nexus' business.
Image source: Getty Images.
So what
Dada Nexus is delivery logistics company in China. It provides last-mile delivery services, and partners with retail companies like grocery stores to deliver orders. And it turns out Walmart (WMT -0.65%) owns 10.7% of Dada Nexus stock. Considering Dada Nexus already partners with Walmart in China, it's not terribly surprising to discover Walmart is a part-owner in the company.
In 2020, Chinese-based companies trading on U.S. stock exchanges have come under increased scrutiny. On May 20, the Senate passed the Holding Foreign Companies Accountable Act. The bill has yet to be signed into law, but it would require companies like Dada Nexus to comply with the Public Company Accounting Oversight Board. Foreign companies that don't comply could be removed from U.S. exchanges.
Now what
Luckin Coffee is a prominent fraud example, and is a good reminder why investors might be nervous about foreign companies. But there are good foreign companies out there. You have to take things on a case-by-case basis.
Walmart has a direct business relationship with Dada Nexus, and that first-hand experience gives it confidence to be a big-time shareholder. It strongly suggests investors can have confidence in the legitimacy of Dada Nexus' business. However, whether investors should invest in the IPO is another question.
Walmart stock was unchanged with the news.
