Put a pause on China concept stocks

July 22, 2011

By George Chen
The opinions expressed are the author’s own.

Two Chinese dotcom companies have apparently become the latest victims of the growing market concern about China “concept” stocks in the wake a series of accounting scandals.

Online video firm Xunlei Ltd and Chinese e-book firm Cloudary Corp have postponed their U.S. fundraising plans. They both blamed volatile global markets. Volatile markets? Really? Aren’t the markets always volatile?

More or less, to some extent. We still see other companies lining up to list in the U.S. although the near-term outlook for China IPOs to land in the U.S. market doesn’t look too bright. In return, such concerns — warranted or not — are growing about Chinese companies listing in Hong Kong and Singapore.

There were some early signs about Xunlei’s difficulties to go public. It failed to win direct investment from News Corp. And some analysts say Xunlei could face challenges from some Hollywood movie makers over copyright issues.

For Cloudary, it’s a different story. The company changed its name from Shanda Literature before the IPO plan, as the firm seeks to brand itself as an e-book maker and seller — trying to convince U.S. investors it could become “China’s Kindle maker”. In the end, the rebranding campaign didn’t make headway.

Maybe what the two companies should really blame is not the volatile market but the investment bankers they hired who should have gotten them to list faster and earlier. Remember the match-making site called Jiayuan.com? It may be a good idea to revisit my previous column “Is China exporting a dotcom bubble?“.

The reason I mention in particular the two Chinese dotcom companies today is to reflect the growing difficulties of selling so-called China concept stocks. China is not just a concept any more. Investors are getting more cautious and are asking more questions.

That should send a message to other Chinese companies considering public listings. For investors in Hong Kong, isn’t it time to review the China concept and related stocks that you hold in hand?

George Chen is a Reuters editor and columnist based in Hong Kong.

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