Ipreo as a Source
Chinese IPOs thriving on US markets
Nearly 40 'red chips' raised $5.2b this year, but sceptics fear a bubble
BEIJING: Chinese companies are back in the United States to raise funds - and looking sexier than ever to investors eager to get their hands on more of the country's hot new growth stocks.
A mere nine months after Chinese listings suffered their worst slump in five years, 'red chips' are back and leading an initial public offering (IPO) frenzy.
Nearly 40 of them have raised a total of some US$4 billion (S$5.2 billion) from still-sluggish US stock markets this year, breaking the record set during the pre-crisis euphoria of 2007.
In particular, six Chinese Internet debutantes have recently averaged first-day gains of 79.5 per cent, according to market intelligence firm Ipreo.
But even as fired-up investment bankers predict even more action next year, sceptics are starting to detect signs of a Chinese Internet bubble eerily reminiscent of the US dot.com boom that ended in a spectacular crash a decade ago.
For now, however, the glamour of the dragon economy's next lap of growth, which will easily outpace the US as it restructures to unleash the buying power of 1.3 billion consumers, is making even unprofitable Chinese companies a hit.
On Dec 8, online video portal Youku, which has yet to break even, enjoyed the best first-day performance in five years, since Chinese search engine Baidu spiked 354 per cent.
That same day, shopping site Dangdang - China's Amazon.com which was in the red until last year when it eked out US$2.5 billion in net profits - rose 87 per cent on its debut.
The average amount of funds raised by Chinese companies is still a far cry from the biggest IPO in the US - GM's US$23.1 billion stock deal last month.
But at one-quarter of the total IPO market, the Chinese can still claim that they have overtaken the Israeli companies as the largest group of foreign issuers in the US, especially on the tech-heavy Nasdaq.
Still, not all Chinese companies have struck gold. For Bona Film Group, the first Chinese film group to list in the US, even getting China-born actress Gong Li to ring the bell for its public offering last week did not drum up enough first-day buzz to avert its 22 per cent drop.
The initial frenzy has also cooled, with Youku slipping 39 per cent from its US$50 high. Some are already wondering if it would be a repeat of Baidu, which dropped over 60 per cent in the first six months before stabilising in 2006.
All this points back to the No. 1 rule of Chinese stock investing: Beware dangerous curves ahead, said analysts.
They point to Chinese listings' unpopularity in the first three months of this year, when they fell an average of 4.8 per cent, Bloomberg data showed.
'China plays were seen then as being too risky: Their prices were driven by speculation and it was unclear if the economy would face a double-dip,' recalled Beijing-based venture capitalist Andy Zhu who specialises in biotech start-ups.
Since then, the risks of Chinese companies have not changed much - but investors' risk appetites have.
'There's so much capital floating around. China is looking at 9 per cent economic growth - or more - next year; combine that with 'Internet' and you get a killer combination,' said Mr Zhu.
Such expectations make it easy to gloss over concerns about some Chinese companies' financial irregularities that may mask their true performance, even with the stricter disclosure rules imposed by US bourses.
Optimists say Chinese listings have delivered results. In the year to December, they averaged returns of 31 per cent compared with 20 per cent for all US IPOs, according to research firm Dealogic.
Many investors are now looking forward to about a dozen Chinese companies on US markets in the first part of next year, including Oak Pacific Interactive which operates Renren, dubbed the Facebook of China.
What is clear from the sheer numbers of Chinese start-ups raising capital on the prestigious Nasdaq and New York Exchange is that they are 'maturing - and fast', noted Ms Rebecca Fannin, founder of consulting group Silicon Asia, on her Forbes.com blog.
'They are beginning to set their own standards - be it on Wall Street or in the lab - and are a force that's here to stay.'
