Bets on Chinese IPOs pay off for investors

Mainland firms listing in the US offer the best returns among global peers on the back of e-commerce boom and robust consumer sector

PUBLISHED : Tuesday, 10 June, 2014, 1:02am
UPDATED : Tuesday, 10 June, 2014, 1:03am

Chinese companies making their stock market debuts in the United States in the past year have rewarded their buyers with the best returns among global peers, fuelled by demand for internet and e-commerce shares from Asia's biggest economy.

The 10 biggest Chinese companies that completed initial public offerings in the US in the past 12 months have returned an average of 44 per cent since their offer dates, compared with 25 per cent for all US flotations of more than US$100 million in the same period. 58.com which provides online classifieds, has surged 140 per cent since its October listing and Autohome, a car information website, has gained 110 per cent since December.

The new Chinese technology companies are benefiting from investor bets that they can profit from the country's expanding consumer sector and grow quickly even with less state help. Companies such as Alibaba Group Holding, China's largest online marketplace that filed for a US listing last month, may get a boost as President Xi Jinping seeks to increase the role of services in the economy, while reducing its reliance on the credit-driven construction that has propelled growth.

"There is a lot of investor excitement around the group, especially ahead of Alibaba," said Kurt Ayling, an analyst at New York-based Susquehanna Financial Group. "Investors generally feel they need some sort of exposure in China once again."

Of the 16 Chinese listings on US exchanges over the past year, 12 are by companies focused on internet technology or web-based services including online shopping. Retail site JD.com attracted US$1.78 billion in a May offer and social media platform Weibo Corp completed a US$285.6 million debut in April as Alibaba prepares what may be the biggest flotation ever.

The CSI Overseas China Internet Index, a gauge of Chinese dotcom companies, has rallied 6.6 per cent this year, compared with a 4.2 per cent drop in the Dow Jones Internet Composite Index.

"If you look at the technology and internet sector, investors were getting hit hard in the US during the first half of the year and needed to search for returns elsewhere," Ayling said. "China is the logical next stop."

Internet sales in the world's second-largest economy are surging as online sellers led by Alibaba are luring more of the country's 618 million users. E-commerce sales jumped 52 per cent in the first four months of 2014 from a year earlier, while broader retail sales gained 12 per cent, which represented the weakest start to a year since 2004, said the statistics bureau.

Favourite China listings in the US were those "linked to the consumer discretionary and technology/e-commerce sectors", said Josef Schuster, the founder of IPOX Schuster in Chicago, a listing research firm.

JD.com China's second-largest e-commerce site, surged 40 per cent since its share offer, while Jumei International Holding, a Beijing-based online seller of beauty products, jumped 35 per cent after raising US$245.1 million on May 16.

With an estimated market value of US$168 billion, Alibaba could raise as much as US$20 billion, topping a US$19.65 billion offering by Visa in 2008.