Chinese stocks have a habit of collapsing shortly after listing in the US. In the past two months, there has been a steady stream of Hong Kong and Mainland firms floating in the US. Too many have seen their stocks drop precipitously. In September and October, there were a total of eight IPOs in the US by Chinese companies worth a combined $2.1bn, according to Dealogic data. Six listings were over $100m, and of those, four were trading below their IPO price by the market close on Monday.
Qudian was the latest to grab the spotlight for the wrong reasons last week.
The company, which listed on the New York Stock Exchange on Wednesday, October 18, saw its American depository shares ride demand to close out the first week up 37.5%. But it then lost 19.4% of its value the following Monday after its chief executive officer Luo Min was quoted as saying that if its customers are overdue on repayments the company would make no effort to collect the debt and instead just give it away as charity.
Any investor that glanced Qudian’s IPO prospectus would have already had an understanding of how the firm treats delinquencies — and would have understandably been surprised to hear the CEO’s apparently new approach. They can hardly be blamed for dumping their stock, bringing an end to a previously impressive rise.
Several Chinese ADS fell too, perhaps helped along by the rout in Qudian. From the open of last to Friday’s close, Rise Education fell 9.2%, RYB Education was down 7.7%, and online luxury goods retailer Secoo Holdings fell 11.25%. However, some see this as a sign the recent hype around US-listed China stocks has ebbed as valuations have peaked.
Fortunately for the US buyers who don’t feel that way, the stream of Chinese IPOs shows no sign of slowing. Firms from the Middle Kingdom — the majority of which are from the technology sector — continue to make the leap into the US market, largely for the promise of a more sophisticated tech investor base.
Sogou, the internet search arm of China’s Sohu.com, and Chinese after-school tutoring service provider Four Seasons Education launched bookbuilding on Monday for IPOs on the New York Stock Exchange, eyeing $585m and $111m, respectively. China’s PPDAI Group, an online platform for peer-to-peer lending, opened books for a $323m IPO on Tuesday.
But the topsy-turvy performance of recent Chinese listings will certainly not help these deals. Qudian’s media team later clarified its delinquency policy in a press release, directly contradicting their chief executive. But although this communications snafu may prove a temporary blip, it does show how far some executives have to go before they are ready to tell their story to an investor base that will — understandably — pounce on any discrepancy.
It would be foolish to bet against Chinese IPOs in the US after such a bumper couple of months. But it is also clear that investors will need to take a long view — and issuers will need to watch what they say.