Speculative funds repeatedly trigger circuit breakers as Chinese start-ups endure volatile Wall Street trading
Chinese start-up Qutoutiao rises as much as 191pc to US$20.39 in Nasdaq debut, before paring gains to close 128pc higher at US$15.9
Chinese start-ups Qutoutiao, Nio and Pinduoduo experienced abrupt surges last week and repeatedly triggered circuit breakers, as analysts suspect speculative funds may have hyped up the recently listed stocks.
“These recently listed IPOs all have a relatively small market float which means the stock price can be easily pushed up or down with only small amount of trading,” said Wang Guanxiong, a Beijing-based investor.
He said US investors are generally not familiar with most Chinese stocks, especially newly listed companies that do not have much financial data yet.
“The extremely large swings indicate at least some speculative activities.”
Stanley Chik, head of research at Hong Kong-based Bright Smart Securities, said hot money may have played a part in the abrupt surges in these US listed Chinese companies, as there is not much fundamental support.
Besides, the US market has drawn increased fund inflows this year and outperformed many global peers. But US-listed Chinese stocks have not really caught up with the gains.
The IPO market has turned active since the first half of this year. And Qutoutiao, Nio, and Pinduoduo all have “some selling points” and received a lot of media hype. All these could have made them the “target” of speculative money, Chik said.
Qutoutiao, a Chinese news aggregation app backed by Tencent Holdings and Xiaomi, priced its IPO at US$7 per share – the bottom of an indicative range – raising US$84 million, significantly lower than its target range of US$122 million to US$144 million.
Shares in the Shanghai-based company opened up 30 per cent and continued soaring on Friday. It rose as much as 191 per cent to US$20.39, before paring gains to close at US$15.97, giving Qutoutiao a market cap of US$4.5 billion.
With a debut day surge of 128 per cent, Qutoutiao set a record this year for US IPOs above US$5 million in fundraising size, according to data compiled by Bloomberg.
Because of the large price swings, the circuit breaker was triggered five times to curb volatility.
The firm suffered a loss of 514 million yuan (US$74.8 million) in the first half of this year, compared with a loss of 28.7 million for 2017.
Meantime, Nio, the Chinese electric car trying to take on Tesla in China, also experienced large price swings and triggered the circuit breaker.
It plunged as much as 20 per cent in early trading after opening 10 per cent higher. The volatility caused the circuit breaker to take place twice on Friday. Nio raised US$1 billion from its IPO, after pricing it at US$6.25 each. It rose 5 per cent on the first day of trading on Wednesday and surged 76 per cent on Thursday.
Qutoutiao had issued 12 million American Depositary Shares (ADS) in its IPO. Nio issued 160 million ADS.
Pinduoduo, the Chinese online discounter that listed in Nasdaq in July, also sank 12 per cent on Friday, following a 30 per cent surge in the previous session.