By LYNN COWAN
U.S. investors have swarmed to Chinese initial public offerings since last fall. But that love affair may be fading.
Five China-based companies have launched IPOs on U.S. exchanges so far in May. All have had mixed responses in the market, a reversal from a few months ago, when Chinese companies were finding strong demand both during their IPOs and once they began trading.
Renren shares rose 29% on the first day of trading, then proceeded to tumble, closing Monday at $12.60, below its IPO price. Above, Joseph Chen, chairman and chief executive officer of Renren, rang the opening bell at the New York Stock Exchange on May 4.
This month, a confluence of events has helped stymie returns from IPOs, particularly those of Chinese companies. The stock market has been rocked by worries about the U.S. economy and the end of the Federal Reserve’s bond-buying program, as well as concerned signs out of China itself, where worries about growth are brewing.
Investors also have been spooked by a rash of stock halts for U.S.-listed Chinese companies in recent weeks. Dozens of small Chinese companies are facing questions by regulators about accounting problems and mismanagement, and the Securities and Exchange Commission has established a task force to examine how lawyers, bankers and auditors are bringing these companies onto U.S. markets.
Analysts and bankers say investors seeking the next hot deal have been piling into Chinese stocks that are listing in the U.S., driving the demand for shares higher ahead of their debuts. But those eager buyers have become quick sellers, setting off a cascade of investors seeking exits. An additional damper has been the increase in broader market volatility in recent weeks.
“More investors are looking at these IPOs with expectations of participating in a hot deal,” says Nick Einhorn, research analyst at Greenwich, Conn.-based research firm Renaissance Capital. “If the stocks turn down early on with those kinds of buyers, it gets exacerbated and becomes a significant selloff.”
Social networking site Renren Inc. found demand for its IPO, raising its price before selling to the public. Its shares rose 29% on the first day of trading, a smaller gain than expected. The stock proceeded to tumble, closing Monday at $12.60, below its $14-a-share IPO price.
NetQin Mobile Inc., a mobile security software firm, lost 19% on its first day after pricing at the high end of its range. NetQin closed Monday at $7.97, well below its $11.50 IPO price. Phoenix New Media Ltd., which provides news content, had a strong debut, rising 34% on its first trading day, though it has fallen 17% since then.
Investors in large part are looking to previous IPOs that generated huge returns.
In December, Youku.com Inc. jumped 161% on its first day. Also that month, E-Commerce China Dangdang Inc. gained 87%. ChinaCache International Holdings Ltd. rose 95% on its debut in October,
After a slow start earlier this year, a second wave seemed possible after Qihoo 360 Technology Co. Ltd. jumped 135% on its first trading day in March.
Still, for all the hype about highflying Chinese IPOs, they haven’t performed as well for investors over the longer term.
Over the past eight months, 36 Chinese companies have tapped the U.S. capital markets for the first time, with an average first-day pop of 21%, according to data tracker Ipreo. A month after their debuts, these deals traded an average of only 4% above their offering price. By contrast, U.S.-based companies had a more modest one-day rise of about 8% and an average 30-day return of 22%, says Ipreo.
That may be having some impact on the number of Chinese companies seeking to go public. Of the 15 initial filings last week, only one, rice-production company Grand Farm Inc., hailed from China, Ipreo said in a research note.
Write to Lynn Cowan at lynn.cowan@dowjones.com