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Jing Ulrich, managing director of JPMorgan Chase in Asia-Pacific, speaks during a panel at Rise 2015 in Hong Kong. Photo: Rise conference

As US tech start-ups see 'unprecedented valuations’, fear of another bubble spooks investors, sparks debate

China’s recent market crash has reignited debate on whether the United States is facing another tech bubble, as the inflated valuations of start-ups like ride-hailing app Uber and home-renting site Airbnb now reach into tens of billions of dollars.

Uber is valued at US$50 billion, making it the world’s most expensive start-up, while Airbnb, founded in 2008, is worth half as much. This puts the seven-year-old website for people to rent out lodging roughly on par with the much longer-standing Hilton hotel brand (US$28 billion).

China-listed tech companies felt the brunt of the June crash, when China’s benchmark index plunged 30 per cent after doubling in size over the previous year. 

Some of the country’s biggest success stories, like China’s top-selling smartphone brand Xiaomi, escaped the vagaries of investors as they have yet to list. At US$45 billion, the company dubbed “China’s Apple” now ranks as the world’s No 2 most valuable start-up. Airbnb is third.

But market jitters still flew across the Pacific and caused the stocks of a number of high-profile Chinese internet companies listed in the US to plunge. Notable examples include microblogging site Weibo and internet services provider Tencent.

However, it is hard to tell whether major players like Uber face a similar risk because there are so many “unprecedented valuations” in the tech market, according to Bob McCooey, senior vice president of Nasdaq.

Speaking at a two-day conference for tech start-ups in Hong Kong on Saturday, McCooey described China’s market woes as a market correction, but one that could further spook investors in US-listed tech companies.

Although investors are placing “future bets” on start-ups like Airbnb, the current level of risk is nowhere near that witnessed prior to the dot.com bubble that burst in 1999, said Jing Ulrich, managing director of JPMorgan Chase in Asia-Pacific.

In that case, investors were bullish about the prospects of the internet and seemingly threw money at any company with an online presence. The wave of over-valuations led to investors losing US$5 trillion from 2000-2002 in the US market.

Yet unlike McCooey, Ulrich feels that most tech companies on indexes like the Nasdaq are trading at “reasonable” valuations these days. 

The number of IPOs in the tech sector is also much lower than it was 15 years ago – 69 in 2014 compared to 350 in 1999 – indicating greater security and less risk, she said.

“So maybe it’s not quite a stretch back to 1999 and 2000,” she added. 

Venture capitalist Peng T. Ong from Monk’s Hill Ventures said investors who bet aggressively that start-ups are going to generate huge wealth are playing with fire.

“When the dot.com bubble, companies blew up in public markets,” he said. “I think most of these blow-ups will now happen in the private market.” 

Young companies would be wise to focus on building their businesses rather than worrying about how much they are valued in relation to their competitors, he added.

“We can try and predict when the bubble is going to burst, or if there’s a bubble, but we are never going to get it right."

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