Over the weekend, I was catching up on the new listing rules for foreign companies to list on U.S. exchanges. The legislation that passed in the Senate is directly aimed at Chinese companies raising money from American investors, and the new rules stipulate that a listing company must certify it is not a state-controlled entity and it must allow financial audits for 3 consecutive years. The bill’s easy passage reflects growing anger around “risky” Chinese companies and their lack of transparency.
The Luckin Coffee ruse only exacerbated this news story and added fuel to Washington’s fire. If you somehow missed that story, the Chinese coffee maker’s CFO lied about its 2019 sales by $310 million. These rules certainly will make it harder for Chinese companies to list in the U.S., and already many companies have decided to list in Hong Kong.
I personally find these rules rather flatulent…Jokes aside, a decoupling of the U.S. and Chinese economies is not likely. These two mega-economies are linked in so many sectors…In fact, China has eased its rules on foreign ownership in 2019, and the liberalization of these rules brought immediate joint venture stakes from Goldman Sachs, Morgan Stanley, and American Express — Not to mention, PayPal’s 70% stake in China’s GoPay. Furthermore, the foreign ownership of Chinese stocks and bonds reached $592 billion in the first quarter of 2020.
So, I find these rules rather ridiculous and any shutting out of Chinese firms would only benefit the Stock Exchange of Hong Kong. Alibaba, NetEase, and JD.com have already nurtured second offerings on the SEHK, and it would be simple to drop their U.S. listing. And, if U.S. investors want a piece of those companies, well, they will just buy them in Hong Kong. We are now enacting wholly symbolic legislation…
Keeping our eyes on the U.S. for a second, the native IPO market has been red-hot. At least 17 companies filed to go public last week including Snowflake, Unity, JFrog, Sumo Logic, Asana, Palantir, DoorDash, and Airbnb. XPeng, Inc., a Chinese electric vehicle maker, hits the NYSE on Thursday.
The reason so many companies are listing? Well, the eye-popping gains. The average one-day gain for U.S. IPOs so far this year is 23.7%, compared to 12.8% in 2019 and 13.4% in 2018. The average one-week return for 2020 is 25.4%, again outpacing 15.2% in 2019 and 11.9% in 2018. At the moment, U.S. IPOs have raised $70 billion, which is more than all of 2019’s $62.5 billion.
In other news, Apple and Tesla split their stocks today. Oh, and early this morning, Beijing put a pretty interesting box around TikTok, it might make Walmart and Microsoft’s acquisition of the social media company fairly challenging.
Here are other things to watch this week:
Today: Zoom earnings
Tuesday: First day in September
Wednesday: ADP employment report
Thursday: Broadcom and Campbell Soup earnings
Friday: Expect a bump in Disney as Mulan hits Disney+
Below you can find some of the most notable stocks to watch today.