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Chinese IPOs Sizzle on First Day, But Fizzle Thereafter

Wednesday, 11 May 2011 | 12:12 PM ET
Investors watch a display at a stock exchange in Huaian, Jiangsu Province, China.
ChinaFotoPress | Getty Images
Investors watch a display at a stock exchange in Huaian, Jiangsu Province, China.

This was supposed to be a big week for Chinese IPOs, with 3 Chinese companies debuting at the NYSE and Nasdaq. But with 2 of those IPOs failing to price last night (wheel maker China Zenix Auto International and dating website Jiayuan.com), the appetite for Chinese IPOs seems to be waning.

That comes after a number of Chinese companies received lots of buzz ahead of their IPOs over the past few months. Recent IPOs, including Renren (REN), 21Vianet (VNET), and Qihoo 360 (QIHU), all saw heavy demand and strong pricings, allowing all of them to raise more money than they had originally expected.

But after all the initial hype, the momentum clearly has been difficult to sustain. Just take a look at the average returns this year for the U.S.-listed Chinese IPOs:

First Day of Trading: Up 20.7%
After First Trading Day: Down 15.9%

In fact, each of the 8 Chinese IPOs that has come to the market this year has seen its stock drop after the first day of trading:

  • Qihoo 360 , down 24%
  • Trunkbow International , down 19%
  • 21Vianet , down 18%
  • Renren , down 18%
  • NetQin Mobile , down 18%
  • China Century Dragon Media , down 9%
  • BCD Semiconductor Manufacturing , down 8%
  • Zuoan Fashion , down 8%

Furthermore, the poor performance has been a trend for a while too. In both this year and last year, although Chinese IPOs have seen a bigger boost on their first day, they have generally underperformed the overall IPO market significantly after their first trading day:

U.S.-Listed IPOs’ Average First-Day Return

Chinese Firms, up +15.6% in 2010 compared to +20.7% in 2011
All Firms, up +10.0% in 2010 compared to +11.0% in 2011

U.S.-Listed IPOs’ Average Return After First Trading Day

Chinese Firms, down -6.2% in 2010 compared to -15.9% in 2011
All Firms, up +20.0% in 2010 compared to +3.4% in 2011

Source: Renaissance Capital

So why has the initial hype fizzled? CNBC's Bob Pisani cites general exhaustion after the recent influx of Chinese IPOs and the heightened scrutiny of metrics provided by these firms.

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  Price   Change %Change
CMD
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TBJ
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5BSB
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NQ MOBILE
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QIHOO 360
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RENREN
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21VIANET
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ZUOAN
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