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Has the bull run on China’s new economy sector fizzled out?
Secondary listings recently launched by Chinese tech firms in Hong Kong disappoint
2 Apr 2021 | Darryl Yu

Looking to generate additional capital from investors and hedge against delisting threats from the United States, Chinese technology giant Baidu launched a secondary listing in Hong Kong early last month amid much fanfare.

However, the shares ended flat on their first day of trading, reversing a trend of first-day pops normally experienced by Chinese new economy companies making their debut on the city’s bourse.

Unlike the secondary listings of peers Alibaba and NetEase, which surged 6.6% and 5.6% respectively on their first day of Hong Kong trading, Baidu’s shares on the city’s exchange closed at HK$256 (US$32.50) a share, a 1.3% drop from its original listing price.

It was the weakest debut for a US-listed Chinese company since fast-food restaurant company Yum China dropped 5.3% in its Hong Kong debut last September. A few weeks later, Shanghai-based video and entertainment platform Bilibili followed suit with its own secondary listing and, similar to Baidu’s case, closed around 1% below its listing price.

This was a stark contrast to the IPO performance of Chinese short video company Kuaishou in its February listing, which saw its share price surge more than 160% on the first day of trading in Hong Kong. Factors including delisting fears of China-based firms in the US have dampened the prospects for Chinese technology companies in recent weeks.

The Securities and Exchange Commission (SEC) last week adopted new regulations that would allow the financial regulator to delist foreign companies on American stock exchanges if they didn’t comply with US auditing standards.

The recent lacklustre performance of Chinese new economy companies could likewise be attributed to investors being turned off by the valuation of some of these high-profile names. Kuaishou, despite its strong stock market debut, saw its net loss widen in 2020 to 116.64 billion yuan (US$17.90 billion), worse than the loss recorded in 2019.

While sentiment around Chinese new economy companies has been volatile in recent weeks, Chinese ride-hailing app Didi Chuxing still hopes to go public soon and is even favouring New York as the preferred listing venue over Hong Kong despite ongoing China-US geopolitical tensions.

In the past Chinese electric vehicle manufacturers NIO and XPeng have done well with their capital market transactions in New York, securing higher valuation as investors there use EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization ratio) as the primary valuation metric. 

Treasury & Capital Markets
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