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Chinese IPOs bring casino trading to New York
[HONG KONG] Chinese startups are bringing mainland volatility to New York markets. Tencent-backed news aggregator Qutoutiao more than doubled on its first day of Nasdaq trading, before tumbling on the second; US$9 billion luxury electric-car maker Nio see-sawed almost as much. Small free floats and untested business models are partly to blame, but the erratic behaviour will hurt future debuts.
Qutoutiao, an unprofitable startup that doles out cash rewards to its readers, priced its shares at the bottom end of a marketed range last week. Investors, it seemed, were put off by a lack of key operating licences, and other signs of a rushed sale. And yet the shares rose nearly 130 per cent from its listing value on the first day - only to then crash 40 per cent in the next session. Nio, China's answer to Tesla, had a similar ride: it priced at the low end of an ambitious range and had a damp start, but its shares soared nearly 80 per cent on the second day. In both cases, the oscillations more frequently seen in mainland exchanges triggered trading halts.
One credible explanation for the roller coaster effect is the small amount of shares actually sold by Chinese debutants, either because of stubborn founders, weak investor demand or both. Indeed, just 16 per cent of Nio was sold, while Qutoutiao put only roughly 5 per cent on the market: that amplifies market mood swings. Overall, the eight largest Chinese companies making US debuts this year sold between 4 and 19 per cent of their shares, according to data provider Dealogic. That compares to between 14 and 86 per cent for the top non-Chinese companies listing on the Nasdaq and the NYSE. Of course, weak pricing relative to early headlines will have contributed too.
Either way, trading with Chinese characteristics has damaging consequences. With even companies like US$27 billion shopping app Pinduoduo whipsawing this year, large institutional investors may be put off further listings, making it ever harder to build credible shareholder books. That only accentuates the gambling problem further.
Stock in Qutoutiao, the Chinese news aggregator, closed almost 130 per cent above its listing price on its first day of Nasdaq trading on Sept 14. The shares ended at US$15.97 apiece that day, having been priced in the initial public offering at US$7. The stock fell more than 40 per cent the following day, taking its market capitalisation to just under US$680 million.
Other newly listed Chinese stocks have been equally volatile. After a damp start on Sept 12, shares in electric-car maker Nio jumped 76 per cent in their second day of trading to close at US$11.60. They fell almost 15 per cent the following day.
Shopping app Pinduoduo's shares closed up 40 per cent higher on the first day of trading in July. It has experienced intraday drops as steep as 15 per cent since.