2018 has been a turbulent year for China-US relations, exemplified by punitive tariffs on the import of goods imposed in both countries and the arrest of Huawei’s Chief Financial Officer in Vancouver at the request of the US government.
However, 2018 has proved a bumper year for Chinese IPOs, with the most public offerings since 2010 in spite of the trade war. 33 Chinese companies entered the New York Stock Exchange and NASDAQ, resulting in $9 billion USD in proceeds. 2017 saw just 17 such listings, demonstrating a renewed commitment by Chinese companies to conquer the US market and tie up US dollars.
While it may appear strange that, in a time of tough words and real trade war between the two nations, so many IPOs has been completed, Chinese companies in the past have done very well out of entry into the international market. A successful IPO signals that international investors have faith in a company, with the NASDAQ providing the most lucrative entry point.
However, it should be noted that interested investors should proceed with caution. While the number of firms entering the market is at its highest point since 2010, performance has not been as strong. Those who invested early have recorded losses as high as 16%, largely due to the weaker position of the Chinese market. Many new stocks offered have also attracted new shareholders, which combined with a restricted free float, has pressured sellers.
Global Growth Slowing
The harsh reality of the stock market has not been confined to the Chinese IPOs. Late December has been a punishing time for global stocks, with the international market sliding amid mass selling. Much of this stems from increased fears of an escalation in the trade war between China and the United States, as well as figures which reveal a significant stagnation in retail sales in the Chinese mainland. These numbers expose the potential failure of the Chinese summer stimulus plan, upon which many investors had placed hope for a resurgence of growth.
2019 will undoubtedly see continued importance of Chinese companies on international stock exchanges. However unless stock prices for new companies show growth, the appetite of US investors may continue to decline.