1.8% off for Luckin Coffee, 1.8% off for Luckin stock

The memory of several U.S. stock market circuit breakers last month remains vivid; now, in April, we are once again witnessing history—but this time the spotlight has shifted from the broad market to individual stocks, and specifically to a familiar Chinese company listed in the U.S.: Luckin Coffee. Less than a year after its IPO and amid ongoing controversy, Luckin triggered six circuit breakers within one hour of opening on April 2—four upward and two downward. ▲ Luckin’s stock price traced two ‘ji’ (‘several’) characters. Even more shocking than the circuit breakers was Luckin’s intraday plunge of nearly 80%; pre-market, the decline even approached 100%. The latest internet meme is already circulating: “1.8% off for Luckin coffee, 1.8% off for Luckin stock.” This sudden crash stemmed from Luckin’s self-disclosure. Before market open that day, Luckin filed a report with the U.S. Securities and Exchange Commission (SEC), admitting that fabricated transactions may have occurred from Q2 through Q4 of 2019, totaling RMB 2.2 billion—causing certain costs and expenses to balloon significantly. The company has established a special committee to investigate. What does RMB 2.2 billion mean? Consider this: Luckin’s total revenue for the first nine months ended September 30, 2019, was only RMB 2.9 billion. Nonetheless, Luckin emphasized that the fraudulent transactions were the result of “improper conduct” by Chief Operating Officer and Director Jian Liu and certain subordinates. The board has taken interim remedial measures—including suspending Liu and the involved employees, halting confirmed fraudulent transactions—and will pursue “all appropriate actions,” including legal proceedings, against those individuals. “The Company is assessing the overall financial impact of the improper conduct on its financial statements; therefore, investors should no longer rely on the Company’s previously issued financial statements for the nine months ended September 30, 2019, and for the two quarters ended September 30, 2019, including its prior net revenue guidance for Q4 2019 and related information,” Luckin stated in its announcement. When a publicly listed company admits to financial fraud, its stock price doesn’t just plummet—it collapses like an avalanche: falling from $26.20 at the close on April 1 to a low of $4.90, less than 0.1× its all-time high of $51.38. Of course, those daring enough to buy the dip may not achieve financial freedom—but they could double their money within an hour, as the stock briefly surged to $10.58 amid a wave of bargain hunters. In short: drinking Luckin coffee may not keep you awake, but those who bought Luckin stock last night likely spent the entire night wide awake. Just two months earlier, Luckin had been targeted by a short-seller. Luckin’s flash crash inevitably recalls the recent investigative report released by short-selling firm Muddy Waters Research. An anonymous research group deployed 92 full-time and 1,418 part-time staff across 45 Chinese cities to collect data from 2,213 Luckin stores—directly accusing Luckin of financial fraud, revenue inflation, inflated advertising expenses, and overstated operating profits, concluding its business model is fundamentally unsound. ▲ The short report alleged Luckin inflated its selling prices. In response to these allegations, Luckin naturally denied them outright.

The stock market keeps falling—what is it warning us about?

You’ve likely heard today about a stock in the U.S. market that suffered its worst single-day performance in over a decade: a Chinese company listed in the U.S. On the night of March 11, five U.S.-listed Chinese firms—including BeiGene—were added to the SEC’s list of issuers identified under the Holding Foreign Companies Accountable Act (HFCAA). The worst-case scenario is delisting by 2024. This news directly triggered a broad collapse across Chinese ADRs. At the close of U.S. markets on March 10, popular Chinese ADRs plunged collectively: over 30 stocks fell more than 10%. Tuya Smart dropped over 32%, Lexin Finance over 26%, Manbang Group 26%, First High School Education nearly 23%, Miniso over 22%, Lufax Holding over 20%, BOSS Zhipin and EHang over 19%, MissFresh over 18%, TAL Education, 360 DigiTech, and JiuZi New Energy over 17%, JOYY Inc., NetEase Youdao, Luckin (OTC), Dingdong Live Grocery, and Waterdrop Inc. over 16%, Huya, Liulishuo, and Best Inc. over 15%, Monster Charging and Uxin nearly 14%, iQIYI over 13%, Zhihu and Tencent Music nearly 13%, Baidu, Bilibili, Tiger Brokers, and Sohu over 12%, Pinduoduo, New Oriental, Yunmi Technology, Kingsoft Cloud, Qutoutiao, WeMicro Hologram, and Ninth City over 10%, and 36Kr nearly 10%. Such a sharp stock market decline signals a substantial deterioration in listed companies’ earnings. And the stock market is deeply intertwined with our daily lives. Under such severe economic pressure, investors should prioritize lower-risk products to meet current portfolio allocation and risk-aversion needs—aiming to effectively reduce portfolio volatility and help investors achieve long-term, sustainable investment returns. In 2022, a new trend emerged: “Overseas Online Surveys.”

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