Despite volatility, China's stock markets lure companies back home
A clutch of Chinese companies are preferring to delist from foreign stock exchanges due to the boom in the Shanghai and Shenzhen stock exchanges
An increasing number of Chinese companies listed in the US are considering going home, as the booming stock markets in both Shanghai and Shenzhen have sent market capitalisation over the roof.
According to a Bloomberg report on June 24, two dozen Chinese companies traded in the US had received go private offers this year totaling US$25 billion. The biggest bid so far—about US$9 billion—has been received by Qihoo 360, a popular internet security software firm based in Beijing. The company went public on the New York Stock Exchange in 2011 with a US$176 million IPO, the largest Chinese listing in the US that year.
Momo, a mobile-only Chinese social network, is also on the list. The company just did its IPO on NASDAQ in December 2014, raising US$216 million.
The privatisation of US-listed Chinese firms is not new—between 2011 and mid-2012, a wave of companies said goodbye to their American dreams after being targeted by short sellers and US regulators for fraudulent accounting practices and other law violations. The bad apples took a toll on the reputation of other US-listed Chinese companies, especially the smaller ones, forcing more to leave after share prices took a dive.
But the current tide of delisting is different—some companies’ shares may be doing just fine in the US (Momo’s share prices have gained more than 15 per cent since December), but they are still leaving because they believe that they can do even better back home in China.
Their confidence seems well grounded—despite recent volatilities, the bull run in China’s stock market has been one of a kind. In the past year, the Shanghai Composite Index has climbed over 116 per cent, while the ChiNext Composite Index in Shenzhen, where most technology start-ups list, have gone up 165 per cent. Accordingly, the average price-to-earnings ratio also shot up for companies on the ChiNext index, reaching 126 times. In comparison, the US-listed Chinese companies are trading only 17 times reported earnings, according to Bloomberg.