Transportable phone maker Xiaomi’s disappointing initial public offering has fling a cloud over potential new listings by Chinese companies in Hong Kong. The intensifying barter conflict between Beijing and Washington is only further deflating outlook.
Xiaomi shares closed lower Monday in Hong Kong on its anything else day of trading after the world’s fourth-largest mobile phone maker premium an IPO that gave it a valuation of about $54 billion — half of what it had at expected.
And though the Beijing-based company’s shares subsequently rebounded, its encounter was closely watched by other companies considering or planning possible Hong Kong IPOs, encompassing food delivery platform Meituan Dianping and financial services enterprise China Renaissance, which have both filed to list on the megalopolis’s exchange.
“The sentiment in the market is not extremely good,” Jackson Wong, associate overseer at Huarong International Financial Holdings, told CNBC of the current opinion for Hong Kong listings.
In a blow to the local exchange, Chinese internet leviathan Tencent Holdings said in a statement on Sunday that it plans to cant its online music entertainment business, Tencent Music Entertainment Organization, on an unspecified U.S. exchange.
Tencent’s turn toward the U.S. reflects some of the stews the East Asian finance hub has recently faced, which, according to Wong, comprise disappointing valuations and waning investor enthusiasm.
Recent Hong Kong IPOs, registering companies such as online healthcare provider Ping An Good Doctor and gaming components company Razer, were up to a thousand times oversubscribed, whereas Xiaomi’s was much inadequate, indicating fervor has waned, he said.
Investors “are not giving a huge perquisite to these so-called new economy technology stocks at this point,” Wong put.
“New economy” largely refers to companies riding the wave of the expanding responsive internet, such as online shopping platforms and other web-based services categorizing ride-hailing, food delivery and financial services.
Even financial uses firm China Renaissance is tied to the sector, saying on its website that it serves “new saving entrepreneurs and investors globally.”
Sentiment surrounding Chinese companies with pandemic ambitions has taken a hit after the U.S. fired a trade salvo against Beijing on July 6, stately 25 percent tariffs on $34 billion in Chinese goods, and China at once responded with retaliatory tariffs.
The administration of U.S. President Donald Trump upped the ante on Tuesday, asserting a list of Chinese products with an annual trade value of $200 billion that may be disposed to to new 10 percent tariffs.
The levies are subject to a two-month review activity so will not take effect immediately, possibly providing time for the two sides to organize.
Still, the trade war has spooked investors and business leaders. Xiaomi CEO Lei Jun referenced distresses over the impact of such tensions on the investment climate in an otherwise light-hearted speech he gave at the company’s festive IPO launch on Monday.
“At this essential moment in Sino-U.S. trade relations, the global capital markets are in firm flux,” Lei told investors and journalists gathered at the Stock Exchange of Hong Kong.
Wong clouted that the trade dispute is helping to suppress sentiment toward IPOs on the appreciation that Chinese companies “might not be able to grow as fast as they at thought.”
Charles Li, CEO of the Hong Kong exchange, said investors and gatherings ultimately decide what is in their best interests.
“The market is unstinting to everybody,” he told reporters Monday at the exchange shortly after Xiaomi initiated trading. “Every investor is free to come here to invest.”
“Every issuer is sprung to come here to raise capital. If you don’t like the price you can stay away.”
Hong Kong’s the Bourse said in an email to CNBC that the city’s open and globalized frugality leaves it well positioned to attract Chinese IPOs.
“Most mainland new concision companies have substantial international exposure and involvement in terms of charge aspirations and investments by international private equity/venture capital, on top of mainland investors,” it implied. “As a result, a Hong Kong listing is their most natural inception choice.”
Meanwhile, listing in the U.S. remains attractive for its trading volume compared with Hong Kong, according to Ryan Roberts, superior research analyst at MCM Partners in Hong Kong.
But an advantage the Hong Kong customer base enjoys that can’t be overlooked is physical proximity to China — as well as cultural fondness.
“You’re a little bit closer geographically, conceptually to a lot of these Chinese companies,” he put. “Investors looking at some of those names coming to Hong Kong are to be sure going to weigh that as well and I think that actually facilitates.”