Chinese stocks trading on American indexes sunk sharply today after the release of disheartening Chinese trade data. The reports prompted heightened anxiety surrounding prospective tightening of Chinese policy from Beijing. The trade related data unveiled Friday morning indicated May exports up 19.4 percent from the year earlier, falling beneath analyst expectations. Despite the massive growth, the data illuminated a considerably slackened pace from April’s 29.9 percent rise. There were mixed views on whether the quick progress of the monetary rate hikes would convince the Chinese to loosen policy, but given the still dramatic numbers, there’s still suspicion that more rate hikes could be in store. U.S traded Chinese stocks have already gotten a bad rap and the potential hikes are exacerbating current attitudes. Furthermore, a number of companies created via reverse-mergers, that would not have qualified for the Hong-Kong stock exchange, ended up being traded domestically, souring attitudes toward Chinese stocks trading on American exchanges as a whole.
Even strong stocks like Baidu (BIDU), China’s version of Google, have been sliding in recent trading, both as a consequence of the rate hike and the growing negative sentiment. Baidu has fallen 10 percent this month, as has Tencent (HKG). Tencent, is considered the nation’s most profitable web company from its efforts running China’s principal instant-messaging platform and operating of online games. Earlier in the week, they announced a plan to invest in a yuan fund began by Innovation Works, an incubation fund founded by Google China’s former head Kai-Fu Lee.
In a similar vein, Sina (SINA), the third most visited website in China and the country’s answer to Twitter has sputtered to its lowest levels since-mid March when short-selling of the stock peaked to 10.6 percent. Sohu (SOHU), a premier Chinese search engine has also been falling on suspicions.
These stocks, despite losses, represent U.S. traded Chinese stocks with a strong structure for profitability. There are also a number of stocks that sought to imitate Baidu’s business plan by duplicating American companies for the Chinese market. Among these stocks is Youku (YOKU), or China’s solution to Youtube and RenRen (RENN), lauded as the Chinese Facebook. Having seen how well these concepts were delivered stateside, predicting success in the billion-plus market of China would seem to be a no-brainer. The companies; however, after strong IPOs all eroded dramatically in value. The companies failed to produce profits and indicated a lack of infrastructure and advertising savvy. Youku is particularly hard-hit at close to half its April highs.
Youku is not alone. Where in the first quarter of this year, Chinese IPO companies trading on U.S. indexes 30-day profits averaging 15.1 percent compared to 10.4 percent for all U.S. IPOs in the same period, that trend has since reversed. U.S. IPO’s in the second quarter added around 7 percent while their Chinese equivalents fell around 24.7 percent in the initial 30-days of trading. The recent losses though have perhaps exacerbated these numbers.