2021 Asian IPOs have stagnated since their first day of strong performance

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A Thai investor checks an electronic board showing stock prices.

Amphol Thongmuangluang | SOPA Image | Light Rocket | Getty Images

Some IPOs in the Asia-Pacific region in 2021 have undergone a sharp reversal of their fortunes since their debut in the strong market.

At the top of the list is the Chinese short video company and Tiktok’s competitor Kuaishou. Kuaishou’s release price more than doubled when it debuted in February. According to data from Morningstar, in terms of deal size, it is the only company listed in Asia among the five largest IPOs in the world this year.

However, as of the close of the Hong Kong stock market on Wednesday, the stock rose 77% from the first day.

Elsewhere, the share price of Indonesian e-commerce company Bukalapak also fell sharply after rising nearly 25% on the first day of trading. As of Wednesday’s close, the stock is currently 57% below these levels.

Another Chinese stock that has fallen back from its first day’s gains is JD Logistics, which raised more than $3 billion in funding in an IPO. Based on Wednesday’s closing price, the stock is 36% below its first-day closing price.

CNBC Pro’s stock selection and investment trends:

These losses stemmed from a series of problems, including Beijing’s continued crackdown on China’s technology industry, which resulted in huge fines imposed on giants such as Alibaba and Meituan.

As the Fed hinted that it would soon begin to normalize its monetary policy, the yields on U.S. Treasuries have also risen. In this case, investors tend to avoid stocks in industries such as technology. These stocks may be affected by rising interest rates, which will affect the company’s ability to fund growth and reduce the value of future cash flows.

In recent weeks, the rapidly spreading variant of omicron Covid has further suppressed investor sentiment and suppressed risk appetite. People still have doubts about the potential economic impact of this new virus.

Not unique to Asia

It is true that the post-IPO underperformance is not unique to the region.

In a December report, James Thorne and Jordan Rubio of Pitchbook highlighted the blockbuster listing in other parts of the world in 2021, which has also fallen sharply since its listing.

One example is the Chinese ride-hailing company Didi, which announced earlier this month that it will delist from the New York Stock Exchange less than six months after listing. It also plans to make its debut in Hong Kong despite reports that Beijing is exerting political pressure.

They said that other US-listed companies, such as Robinhood and South Korea’s Coupang, also “lost significant value”.

“This downturn has caused the IPO market to cool down, causing some new issuers to postpone or shrink their IPO plans. All in all, 2021 may represent a high point in the IPO market and may not match the next few years,” Thorne and Rubio said. .

Aswath Damodaran of New York University told CNBC earlier this month that the post-IPO decline may be due to the “big market illusion” of some investors buying.

A professor of finance at New York University’s Stern School of Business explained that these investors “did not do their homework”, such as checking the business models of these companies, and reality usually appears when the first earnings report is released.

“This is a somewhat disturbing sign, but on its own, I don’t think…it’s a red flag. I think it’s more like a sign of the type of listed company you see. Many of these companies have small revenues, large losses, and high potential,” Damodaran said.

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