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"Go East, Young Firm": Chinese Companies Drop New York Listings, Return Home

Tyler Durden's picture




 

China’s equity market bubble has become the stuff of legend recently, as millions of newly-minted day traders, record margin debt, liberalized cross-border flows, and the inclusion of China A shares in two transitional EM FTSE Russell benchmark indices have created a veritable frenzy on the SHCOMP and, more spectacularly, on the Shenzhen exchange.

Valuations have soared, as has turnover and the bubble chorus is growing appreciably louder by the day. The following excerpt from a recent BNP note captures the situation nicely.

Momentum buying reinforced by market-capitalisation benchmark weightings could further inflate the bubble. In particular, imminent decisions on the inclusion of A-shares in global equity indices might see strong institutional buying buttress the retail mania for a time. Still, the exponential trends in turnover, margin debt and increasingly valuations imply that a climax is now unlikely to be too far away. The Shenzhen Composite’s P/E ratio is now over 66x (with a median P/E of 108x), compared with the 75.8x P/E at the 2008 bubble peak. 

 

Of course not everyone thinks the historic run is likely to end anytime soon and indeed, the momentum serves as a siren song to many Chinese companies which have listed on the NYSE. Reuters has more:

Chinese tech firms have fallen out of love with America, and it shows - a growing number of them are looking to drop their listings in New York and head back home.

 

Many Chinese tech executives are betting on higher share valuations in China where stock markets have recently caught fire. They also hope to evade any legal mess when Beijing formally outlaws foreign shareholder control of firms in protected tech sectors.

 

The numbers are hard to resist. China's tech-driven ChiNext composite index has gained nearly 180 percent this year, eclipsing the 30 percent rise in the Nasdaq OMX China Technology Index that tracks offshore listed mainland firms .

 

Firms listed on the Nasdaq index get an average share price equal to 11 times their earnings. On ChiNext, they get 133 times. There's a debate over which ratio is more accurate, but Chinese executives blame U.S. ignorance of China.

 

"American investors don't understand the business model of Chinese gaming companies," said a senior executive of one such firm planning to eject from New York and move back to a Chinese listing, speaking on condition of anonymity.

Perhaps. Or maybe American investors don't understand the valuations. 133X is a lofty multiple even for America's generally clueless BTFDers and indeed, the mainstream financial media is now awash with reports about China's stock bubble. 

Whatever the case, China is relaxing restrictions on tech listings in an apparent effort to encourage more startups to repatriate as Shanghai transitions to a more prominent role in the financial world.

Chinese investors' enthusiasm for startup listings is relatively recent, whereas U.S. investors have been rewarding internet startups with high share prices for decades.

 

But more important was the fact that Chinese regulators wouldn't let such firms list in the first place. The China Securities Regulatory Commission (CSRC) has required any company to be profitable for several years before listing - a rule which ruled out most Chinese internet companies.

 

"The obstacle to coming back has been removed," said China Renaissance in an email to Reuters. 

Companies have also devised workarounds for China's profitability restrictions, including convenient (if nonsensical) coporate tie-ups:

Profitability requirements are being eased, and there's also a shortcut: a merger with a Chinese company with a listed shell.

 

Chinese display advertising giant Focus Media, which bailed out of New York in 2013, said this week it will relist in China via a $7 billion reverse merger with rubber manufacturer Jiangsu Hongda in what analysts say is a model for returnees to follow.

Finally, China may look to close a legal loophole that allows companies in restricted sectors to take in money from foreign investors, a move which could further discourage tech companies from pursuing US listings:

Chinese law bans foreign investment in domestic internet firms. Investors get around the restrictions by buying into variable interest entities (VIEs) set up by the internet companies, including Alibaba. U.S. courts recognise that as equivalent to ownership of the companies.

 

But now Chinese regulators are revising the foreign investment law. A draft version of the document published by China's cabinet explicitly forbids "effective control" by foreigners of a Chinese company in a prohibited sector.

For Wall Street this means no more hundred million dollar paydays from underwriting highly anticipated Chinese offerings.

For American exchanges, it means that as long as China's self-feeding equity mania persists, US listings make little economic sense. Especially if China makes a concerted effort to bring more companies home. 

 

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Sun, 06/07/2015 - 20:05 | 6172799 Philo Beddoe
Philo Beddoe's picture

Pets.com could be making a come back. This time with recipes. 

Sun, 06/07/2015 - 20:07 | 6172801 Soul Glow
Soul Glow's picture

Sometimes the comment section only needs one comment on the thread.  This is the one ^^^

Sun, 06/07/2015 - 20:10 | 6172805 cowdiddly
cowdiddly's picture

nah never happen. The most popular dogs name in China is "Lunch"

Amazon might have a shot though getting almost profitable after 15 years or so

Sun, 06/07/2015 - 20:30 | 6172839 Atomizer
Atomizer's picture

Good comment, small correction. S. Korea is best known for the dog buffet. You take your shoes off outside, sit at a little tikes kids table while resting your buns on a pillow. When the dog stops barking, the meal is minutes away from being served. 

;)

Sun, 06/07/2015 - 20:40 | 6172864 BurningFuld
BurningFuld's picture

"Pets.com could be making a come back. This time with recipes. "  Recipes that your Pet can eat or recipes on how to eat your Pet.

Sun, 06/07/2015 - 21:05 | 6172883 Atomizer
Atomizer's picture

If eating dog caught on in America, the Humane Society would go out of business. Korea cooks would show up at the kennel shelter and ask, how much he weigh?  

/LOL

Sun, 06/07/2015 - 22:56 | 6173140 WayBehind
WayBehind's picture

The Asian community around the Bay area is known to be very active in "adopting" dogs already so no surprise there ...

Mon, 06/08/2015 - 00:51 | 6173324 TruthInSunshine
TruthInSunshine's picture

Big problems in China:

http://portal.ransquawk.com/headlines/shanghai-new-home-sales-falls-37-4...

News Headline Summary

Shanghai new home sales falls 37.47% W/W and average home sales falls 2.64% W/W according to Uwin
08 Jun 2015 - 04:49 - Forex - Source: BBG

http://portal.ransquawk.com/headlines/shanghai-new-home-sales-falls-37-4...

News Headline Summary

Shanghai new home sales falls 37.47% W/W and average home sales falls 2.64% W/W according to Uwin
08 Jun 2015 - 04:49 - Forex - Source: BBG

Mon, 06/08/2015 - 01:40 | 6173365 old naughty
old naughty's picture

are you suggesting that this liberalization and return-reversing is a cover up for pushing higher than 133X...

since we over here thought 50X, 100X,...are way too high?

 

Mon, 06/08/2015 - 06:39 | 6173529 winchester
winchester's picture

in china they eat dog, in arab countries they fuck goats, in usa women get fucked by dog and horses then video go internet, in europ they fuck childs... anywhere their own pervertions.

Sun, 06/07/2015 - 20:10 | 6172806 tarabel
tarabel's picture

 

 

Deep thinking, man. My congratulations.

Sun, 06/07/2015 - 20:24 | 6172829 Arnold
Arnold's picture

Agree.

Sun, 06/07/2015 - 20:22 | 6172826 Atomizer
Atomizer's picture

Where's my scooby snack? Ruh roo. 

Sun, 06/07/2015 - 21:21 | 6172940 Laowei Gweilo
Laowei Gweilo's picture

haha +1

Sun, 06/07/2015 - 20:10 | 6172808 gdiamond22
gdiamond22's picture

Fuck Bill Gross and his 'short of a lifetime' in the Bund market. Shorting Chinese stocks will be the short of the century

Sun, 06/07/2015 - 20:31 | 6172817 Soul Glow
Soul Glow's picture

After this ramp yes, yet look no further than shorting US equities with their P/E at highs and this with the Aurthur Anderson accounting gimmicks.  Or shorting government debt paper.  How many cities, nation-states, and corporations are there that will not be able to pay their bonds and watch their debt sink?  Too many to count with shale companies going belly up left and right, nation-states like Argentina and Greece freezing their peoples assets, and cities like Detroit cutting pensions in half.  Time will continue to drown debt paper.

The shorts should be piled on.  The system is unraveling.  US equities continue to top out, now even breaking trendlines to the downside.  The Fed will never raise rates and are headed for the shit storm of the century.  Greece is bankrupt and will soon default.  US cities are bankrupt and will soon default.  The world is bankrupt and will soon default.

This and the precious metals suppression scheme is in full affect.  Gold should be valued some thousands of dollars higher with the inflation that has run roughshod over the globe.  Silver much higher as well.

Any match could burn the house down, and there is only one way to preserve wealth - by owning gold and silver bullion.  That which holds intrinsic value, that which can not be printed, that which needs no credit.

Go short if you want - short equity, bonds, what have you, but remember, you will be paid with fiat debt paper.  The only way to bridge the gap that is the fiat inferno is by owning bullion.

Sun, 06/07/2015 - 22:33 | 6173099 Son of Loki
Son of Loki's picture

These international corporate and tax lawyers have solid job security looks like. All that legal maneuvering must be expensive.

Sun, 06/07/2015 - 20:14 | 6172812 Max Steel
Max Steel's picture

DubBank , Lao can enlighten us more  .

Sun, 06/07/2015 - 20:17 | 6172814 Atomizer
Atomizer's picture

Wallstreet is sending HFT nodes to trigger DEFCON2 alert mode. 

http://www.defconwarningsystem.com/

/sarc 

Sun, 06/07/2015 - 20:35 | 6172848 buzzsaw99
buzzsaw99's picture

SOLID GOLD:

"American investors don't understand the business model of Chinese gaming companies," said a senior executive of one such firm planning to eject from New York and move back to a Chinese listing, speaking on condition of anonymity.

Sun, 06/07/2015 - 23:18 | 6173175 sun tzu
sun tzu's picture

The business model is very similar to American companies. Use accounting gimmicks to fleece the sheep

Sun, 06/07/2015 - 20:42 | 6172865 booboo
booboo's picture

Parabolic? yea, this should be epic.

Sun, 06/07/2015 - 20:46 | 6172875 Arnold
Arnold's picture

My Favorite restaurant name was 'Ta Chien' near Cleveland Circle, near Boston, MA.

French fusion chinese, I think

Sun, 06/07/2015 - 21:09 | 6172920 Atomizer
Atomizer's picture

What da fook is tonight's evening special. 

Mon, 06/08/2015 - 06:43 | 6173530 winchester
winchester's picture

French fusion chinese, I think

 

lol !

Sun, 06/07/2015 - 21:14 | 6172927 q99x2
q99x2's picture

I ain't got many fighten years left. Let the war begin.

Sun, 06/07/2015 - 21:28 | 6172956 Atomizer
Atomizer's picture

I feel the same, it will be fun to watch the millennials (generation Y) social network the upcoming war from a keyboard. Until they lose Interweb access. The dumbfounded won't know how to regain access without a APP. 

Good comedy prevails ahead. 

:)

Mon, 06/08/2015 - 06:47 | 6173532 winchester
winchester's picture

man, you so true that it's ACID.

 

the most important strategic points in 20 years for war will no longer  be missile slots or whatever, it will be just to  shoot some cell phone  network antennas on buildings's roofs.

 

 

Sun, 06/07/2015 - 21:18 | 6172930 Chuck Knoblauch
Chuck Knoblauch's picture

Chinese government pays for Woo's US education.

Woo works as a H1B visa slave.

Woo steals US secrets and starts a Silicon Valley company in Shanghi.

US politicians get money for re-election.

US banks making money on this strategy???

Chinese laughing at America because we so stupid.

Sun, 06/07/2015 - 22:10 | 6173045 Atomizer
Atomizer's picture

1998 Executive Orders Disposition Tables 

William J. Clinton - 1998

http://www.archives.gov/federal-register/executive-orders/1998.html

13102,13103, 13092.

Sun, 06/07/2015 - 23:55 | 6173242 Jack Burton
Jack Burton's picture

If China Money  exits the New York Real Estate Market, a massive build of luxury towers and town houses will collapse in a heap of losses. High end RE has exploded with full ask for everything and bidding wars for prime views. Most of the super high end RE is going to overseas money. China being biggest. Russians have pulled back. South America is buying, but starting to waver. If QE ends, and China hard lands, while the USA presses political crisis with both Russia and China, then the New York bubble may blow the fuck up!

Mon, 06/08/2015 - 00:30 | 6173301 Wannabe_Oracle
Wannabe_Oracle's picture

Perhaps a fair, and genuine approach might solve things.. Meh, likely not with these rock brain defects.

 

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