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ZTO shares slid on debut because fear dominates US markets, Ridgeworth says

ZTO Express's disappointing NYSE debut reflected the level of fear and uncertainty hanging over the U.S. market, a portfolio manager told CNBC.

Michael Underhill, a portfolio manager at Ridgeworth Investments, which has $40 billion in assets under management, told CNBC's "Squawk Box" on Friday that these doubts were putting selling pressure on the market, so early share price performance wasn't indicative of the strength of an initial public offering (IPO).

"To try and bring a stock out on a day like that, I think you are really swimming upstream," he said.

Shares in the package delivery company opened at $18.40 a share, 5.6 percent lower than its IPO price of $19.50, and ended down more than 15 percent at $16.57 each.

The IPO, which raised $1.4 billion, was billed as the biggest of the year, as well as the largest by a Chinese company in the U.S. since Alibaba's 2014 debut.

In its prospectus, ZTO said it had developed a delivery network that covered over 96 percent of Chinese cities and counties. It also said it had a market share of 14.3 percent, making it the second largest delivery service company in the mainland.

People sort through packages next to a ZTO Express delivery vehicle outside an office building in Beijing, China>
Qilai Shen | Bloomberg | Getty Images
People sort through packages next to a ZTO Express delivery vehicle outside an office building in Beijing, China>

The bulk of the parcels the company handles comes through China's growing e-commerce market, from the likes of Alibaba and JD.com.

Underhill pointed out the lack of enthusiasm in the stock market did not undermine the company's story of "vigorous growth" in recent years.

The prospectus showed in 2013 it handled about 1.07 billion parcels in China, which grew by 175 percent to about 2.95 billion by 2015; between 2011 and 2015, the company's compound annual growth rate was 80.3 percent. In the first half of 2016, the company handled 1.91 billion parcels, up 61.4 percent for the same period a year earlier.

ZTO's rapid growth was indicative of the potential of the delivery market in China, however, which meant that new competitors could spring up looking to wrest away marketshare, Underhill noted.

He said ZTO had some defense, though, from these competitors through its competitive business model and the sheer size of its footprint, which he expected to expand further in the final quarter of 2016 on the back of the upcoming November 11 Singles Day - China's largest retail holiday event- as well as a pre-New Year buying spree.

"ZTO could possibly handle a significant amount of packages in the [final] months of the year...that could eclipse the other months," the investor said.

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