US investors swear by China's firms amid friction

Despite the intensifying delisting threats from the US administration, Wall Street investors' "sheer" demand for shares of Chinese companies with good fundamentals remains, industry experts said.

From Jan 1 to Sept 10, Chinese companies raised over $5 billion from IPOs in the United States, more than double what was raised during the same period last year, according to data provided by FXTM, a global trading platform based in the United Kingdom.

Chinese IPOs in the US surged despite the ongoing audit dispute between the two nations that could force Chinese companies already listed in the US to delist.

"Although the audit dispute adds a layer of uncertainty around these (new) Chinese stocks, it has yet to feature prominently in investment decisions," said Channel Yeung, a market analyst with FXTM.

KE Holdings Inc, a Chinese online property platform that debuted in New York last month, tripled from its issue price of $20 per share to $60.72 as of Sept 16.This is a testament to the quality and value that Chinese stocks bring to investors in the US, Yeung said.

Since the time Luckin Coffee Inc owned up to its misreporting of accounts in April, Chinese issuers in the US have met with increasingly tougher regulatory environment.

A Reuters report in August stated that some US officials urged the government to delist Chinese firms that fail to meet local audit requirements by January 2022.

This ratcheted up the delisting threat to a new level as the US Senate had passed a bill in May that proposed to delist foreign firms that fail to meet the local requirements for three consecutive years.

Amid the audit dispute, some Chinese companies listed in the US have underperformed the broader US equities, albeit marginally. The NASDAQ Golden Dragon China Index, which tracks China-based businesses traded on Nasdaq, rose by 39.5 percent to 12,734.76 points from April 1 to Sept 17. During the same period, the NASDAQ Composite Index climbed 41.7 percent.

Investors have largely shrugged off the regulatory uncertainties as they continue to hunt for growth prospects as well as geographical diversification, especially as China is leading the global recovery from the COVID-19 pandemic, a process that might benefit Chinese businesses more than others, experts said.

Global investors, including US-based ones, cannot "afford to miss Chinese companies" as they seek quality stocks with strong growth prospects for the companies concerned, said David Chin, head of investment bank in Asia-Pacific for UBS, the Swiss bank. Chin is also UBS China country head.

"Even though there have been Chinese corporate failures such as Luckin Coffee on the US stock markets, the vast majority of US-listed Chinese companies have created significant shareholder value over the years," Chin said. "That's why I think it'll be win-win if the audit technical issue gets resolved."

Given investors' penchant for stocks of companies with strong fundamentals and amid strong liquidity in the US, the number of Chinese firms to be listed in the US this year could be around the highest level in the past decade, according to Hao Yusheng, chief representative of Nasdaq in China. There were 41 Chinese IPOs in the US in 2018, the highest annual figure since 2010, according to Wind Info.

Yet, current regulatory uncertainties could mean heavier downside risks to US-listed Chinese firms and fewer Chinese IPOs in the US in the years ahead, experts noted.

The prospects for US IPOs of Chinese firms in 2021 remain to be seen, as companies in their early rounds of financing ponder changes in the US political and regulatory environment, Hao said at a recent forum in Beijing organized by online trading platform Xueqiu.

"There is still a high degree of uncertainty as to how the regulatory environment will evolve," said Chin from UBS, adding that some of the Chinese companies contemplating overseas listing expect a solution next year.