Steve Weiss, managing partner at Short Hills Capital, said Tuesday that he would not own Chinese stocks again because of the regulatory risk that comes with that country's government.
Speaking to CNBC, Weiss argued that the complicated legal structures required to list Chinese companies in the U.S., along with the interventionist nature of the Chinese government, made these investments difficult.
"When you own a Chinese stock that's listed in the U.S., that's an ADR, you basically own nothing," he said.
"There's a good chance you have no avenue to collect if you get into a dispute," he added.
On the news, DIDI dropped more than 20% in Tuesday's midday trading. It fell to $12.34, well below its $14-a-share IPO price.
Weiss explained that the legal structures required to go around Chinese limits on foreign ownership often lead to the companies getting listed in the Cayman Islands or some other offshore haven. This complicates any legal actions that might become necessary, he said.
Meanwhile, the company's assets remain held in China, with the Chinese government looking skeptically at the offshore workaround that some companies take, Weiss noted.
Other high-profile Chinese ADRs include Alibaba (NYSE:BABA), Pinduoduo (NASDAQ:PDD), JD.com (NASDAQ:JD), NIO Inc. (NYSE:NIO), Baidu (NASDAQ:BIDU) and NetEase (NASDAQ:NTES).
Beyond the risk of more regulatory problems, some investors weren't sold on DIDI going into last week's IPO. For more on that point of view, check out this report from David Trainer giving his bearish take of the firm's IPO valuation, which he called a "bad ride for investors."