A Faint Glimmer of Hope for Chinese Listings
The U.S. Securities and Exchange Commission (SEC) is doing its job in helping to clean up some of the fraudulent Chinese stocks that have invaded the U.S. equities markets in the past years and ripped off investors to the tune of billions of dollars.
So far this year, only three Chinese initial public offerings (IPO) have listed on U.S. exchanges, and based on the reception from U.S. investors, there appears to be some excitement and trust returning to Chinese stocks in the equities markets.
A recent listing was the Chinese social media play YY Inc. (NASDAQ/YY), which debuted at $10.50 on November 21 and is currently trading up 20% as of Wednesday. The fact the stock has edged higher is a surprise, but it may suggest that the worst is over for new Chinese issues. The other two Chinese IPOs, Chinese e-retailer Vipshop Holdings Limited (NYSE/VIPS), which has more than doubled from its IPO price of $6.00 on March 23, and e-commerce services company Acquity Group Limited (NYSE.MKT/AQ), which is slightly up from its IPO price of $6.00 on April 27.
For Chinese companies, it will be a long journey before they can regain investors’ trust, but I feel that the new strict requirements for listing on U.S. equities markets will help to assure that only sound Chinese companies will seek listing here. The fact that Chinese companies seeking listing in the U.S. equities markets must use approved U.S. auditors will only help to bring some trust back. This is the only way investors can feel comfortable dealing with Chinese stocks in the equities markets.
We all know about the trail of fraud initiated by numerous Chinese companies that emerged on U.S. equities markets via the speculative reverse merger process.
I do not sense a return to recent years. Speculation of several big Chinese e-commerce IPOs looking to list in the U.S. equities markets this year has not come to fruition.
As we move forward, keep an eye on three Chinese Internet plays that are looking at listing in the U.S. equities markets: 360buy Ltd. (an online retailer), vancl.com (the largest online clothing retailer in China), and Xiu.com (an online seller of luxury goods). 360buy.com had planned to launch an IPO valued between $4.0 billion and $5.0 billion in the second half of 2012.
The problem will continue to be the trust factor for investors. I know I have been burned by fraudulent statements from Chinese companies; I would need to be fully confident in the operations and validity of the numbers before I would consider jumping back in.
Just think about the weird situation that occurred with Shenzhen, China-based Deer Consumer Products, Inc. (NASDAQ/DEER), a Chinese maker of small home and kitchen electric appliances that is managed by its founders. Unfortunately, the founders may not be forthcoming on their operating results. Trading in the stock was halted on the NASDAQ on August 10 and will continue to be so until the company provides the requested information to NASDAQ. Short-selling trader Jon Carnes hired an independent third-party investigator on August 3 to visit two of Deer’s factories in Yangjiang. The investigator’s findings alleged that there was no evidence of any production at the plant and no workers were to be seen. The report included aerial shots of the facility allegedly showing that there were no trucks at the plant or any sign of activity.
The fiasco with Deer, along with numerous other Chinese companies, demonstrates the issue when looking at Chinese stocks listed on U.S. equities markets.
Hopefully, with the new rules of engagement, market trust will slowly come back.