China/US IPOs: Joe Biden brings discipline to military manoeuvres

Lex OPINION:

President Joe Biden widened the US blacklist of Chinese companies to 59 names last week. You might expect extra curbs to deter Chinese tech businesses planning to float in New York and benefit Hong Kong and mainland exchanges. You would be wrong on both counts.

Online recruitment platform Kanzhun and ecommerce company Dmall are among those intending to press ahead with listings. Neither are on the US blacklist. They hope to benefit from newfound clarity on which Chinese businesses the US will tolerate.

Chinese tech companies have good reason to prefer New York markets. Hong Kong has cooled. The number of listings has fallen and capital raised is running at half last year’s level.

First-day share price jumps are less likely. Nearly a third of debutantes posted a first-day decline in the first quarter, with median gains at just 2.1 per cent, according to Bloomberg data.

US listings show signs of slowing too. Yet new listing volume on Nasdaq this year remains higher than last year. Most new listed stocks are still posting gains on their first day of trading. The average rise from IPO price is 18 per cent in the first month.

It is difficult to argue that the slowdown in Hong Kong is simply due to weaker fundamentals. JD Logistics gained far less on its first day than stablemate JD Health last year, despite a cheaper valuation.

This explains why Chinese companies plan to press ahead with New York listings if they can. At a headline level, the US and China remain locked in conflict over trade, spying and intellectual property. But at a local level, Biden has clarified the extent of apparent ties to the Chinese military that push a company beyond the pale. This is good for the valuations of Chinese tech companies free of close military ties.

He has already removed Xiaomi, which makes smartphones and other consumer goods, from the blacklist. Shares have more than doubled in the past year. Biden offers no olive branches to Chinese business. But he does offer greater certainty.

-Lex is a premium daily commentary service from the Financial Times.

© Financial Times

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