Nasdaq has officially begun taking deliberate steps to stifle as much as possible, initial public offerings (IPOs) of small Chinese companies going public in the U.S. The index, according to a Reuters report, is doing this by slapping several restrictions on these firms and frustrating their efforts for approval. Supposedly, the Nasdaq index is doing this because the majority of these firms usually end up raising most of their initial capital from Chinese backers, rather than investors in the U.S.The effect of this phenomenon means that most of the shares available from the companies almost always remain in select hands, significantly reducing the market/index activity. Thus, the consequent “low liquidity makes them unattractive to many large institutional investors, to whom Nasdaq is
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Nasdaq has officially begun taking deliberate steps to stifle as much as possible, initial public offerings (IPOs) of small Chinese companies going public in the U.S. The index, according to a Reuters report, is doing this by slapping several restrictions on these firms and frustrating their efforts for approval. Supposedly, the Nasdaq index is doing this because the majority of these firms usually end up raising most of their initial capital from Chinese backers, rather than investors in the U.S.
The effect of this phenomenon means that most of the shares available from the companies almost always remain in select hands, significantly reducing the market/index activity. Thus, the consequent “low liquidity makes them unattractive to many large institutional investors, to whom Nasdaq is seeking to cater.”
Some of the Chinese public offerings that have had bigger backings from Chinese investors than those in the U.S. include Dogness International Corp (DOGZ.O), a pet-focused producer; Ruhnn Holding Ltd (RUHN.O), a digital company; and Puxin Ltd (NEW.N), an after-school education coordinator.
Speaking to Reuters, a spokeswoman for the Nasdaq, expresses that the index’s main goal is to make sure the market remains fair. This suggests that the companies who chiefly receive Chinese investments might be upsetting this balance.
“One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies. The statutory obligation of all U.S. equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for U.S. investors.”
It could make sense to assume that the current trade war between the U.S. and China has not only impacted Chinese public offerings in the U.S., but is also the reason why several Chinese firms in recent times, have opted for the Hong Kong stock exchange instead of other options in the U.S.
A report has shown that in the first six months of 2019, Chinese companies that chose to go public in the U.S. were only 11, raised below $1.5 billion and represented just 4% of the entire IPO market. This is a significantly small number from 2018, which saw 40 Chinese public offerings raising about $8.6 billion, representing almost 15% of the IPO market.
On Friday, we reported that U.S. President Donald Trump, amid his impeachment problems, was supposedly considering delisting all Chinese companies from stock markets in the U.S. Shortly after this news came to light, U.S.- listed companies saw a drop in their stock with e-commerce giant Alibaba (BABA) stock losing 5% and popular search engine Baidu (BIDU) losing about 4%. An official with the U.S. Treasury has since refuted this claim.
Also, the U.S. Congress back in June put forward a bill that would increase regulation and monitoring of U.S.-listed Chinese companies involving periodic audits. The bill also specified that any companies that fail to comply will be delisted.
In general, more than $70 billion has been raised by Chinese firms on U.S. platforms since about 2000.