The Economist - USA (2020-10-17)

56 Business The EconomistOctober 17th 2020

1

C

hinese firmsget a frosty reception in

America these days. President Donald

Trump is a relentless China-basher. His ad-

ministration has tried to crush Huawei, a

telecoms giant, ban TikTok and WeChat,

two popular Chinese-owned apps, and ex-

pel Chinese companies listed on American

stock exchanges. No wonder that some

have steered clear of late. Ant Group, a fin-

tech star that may once have followed Ali-

baba, the tech titan with which it is affiliat-

ed, onto the New York Stock Exchange

(nyse), is about to float in Hong Kong and

Shanghai instead. Last month Sina, the

Nasdaq-listed owner of Weibo, China’s an-

swer to Twitter, said it would go private in a

$2.6bn deal. A day later Tencent, another

Chinese online colossus, said it would buy

out Sogou, a nyse-traded search company,

for $3.5bn.

Many Chinese firms that might once

have flocked to New York are eyeing their

home stockmarkets. According to consul-

tants at Deloitte, from January to Septem-

ber new listings in Hong Kong raised some

$28bn, two-thirds more than in the same

period last year. The money raised by new-

comers to the biggest mainland exchanges,

in Shanghai and Shenzhen, has reached

355bn yuan ($53bn), 2.5 times the compara-

ble figure in 2019.

Look closer, though, and plenty of Chi-

nese startups continue to covet American

listings. In August ke Holdings, an online

property firm backed by Japan’s SoftBank

Group, raised $2.1bn; xPeng, an electric-car

maker, picked up $1.5bn. Lufax, a fintech

firm which this month filed to go public on

thenyse, may raise $3bn. All told, Chinese

firms have raised nearly $9bn in American

initial public offerings (ipos) since Janu-

ary, and another $8bn in secondary share

sales. Goldman Sachs, an investment bank,

reckons that the money raised from Chi-

nese ipos on the nyse and Nasdaq has held

up during Mr Trump’s presidency (see

chart). The market value of Chinese listings

in America now exceeds $1.6trn, of which

American investors hold nearly a third.

Goldman Sachs forecasts a record number

of Chinese listings in New York this year.

Why would Chinese companies flock to

America given the apparently toxic envi-

ronment? For one thing, as Adam Lysenko

of Rhodium Group, a research firm, points

out, it is often easier to list on American ex-

changes than in China, with its more re-

strictive regulatory regime. Ant’s block-

buster stockmarket debut hit a last-minute

snag this week when China’s top securities

regulator unexpectedly delayed approval

for the Hong Kong leg of its dual listing.

An overseas listing also allows main-

land companies to get round China’s strict

currency controls. Gary Rieschel of Qiming

Ventures, a venture-capital firm, says that

going public in New York, the world’s pre-

eminent financial centre, makes sense for

Chinese firms like Lufax keen on global ex-

pansion. For rising technology startups in

particular Wall Street also represents an

imprimatur from the world’s most sophis-

ticated investors, and access to its deepest

and most liquid capital markets.

Shareholders, for their part, get a slice of

its perkiest stocks. Total returns for an in-

dex of Chinese firms listed in America

tracked by bny Mellon, a bank, have risen

by nearly half in the past 12 months, twice

the rate for the s&p500 index of big Ameri-

can firms. Mr Lysenko calculates that from

2017 to 2019 Chinese firms listed on Ameri-

can exchanges traded at higher valuations

relative to earnings than companies in the

s&p500, on the Nasdaq, or indeed those

whose shares changed hands on the Shen-

zhen and Hong Kong stockmarkets. These

“red” stocks are simply too tasty for Ameri-

can investors, red as they already are in

tooth and claw, to forgo. 7

NEW YORK

Why companies from China still flock

to Wall Street

Chinese IPOs in America

Red capitalism

Coming to America

Sources:S&PGlobal;BNYMellon;

GoldmanSachsGlobalInvestment Research

*AmericandepositoryreceiptsofChineseshares

†Jan1st-Aug25thannualised

Totalreturns

October14th2019=100

160

140

120

100

80

60

2019 2020

S&P 500

S&P/BNY Mellon China

Select ADR Index*

120

100

80

60

40

20

0

20†15102005

IPOproceedsraised,$bn

China HongKong US

30

20

10

0

20†15102005

Number of Chinese IPOs

in the United States

W

ere anymore evidence needed to re-

flect how surprising 2020 has been,

consider tractor sales. In April Hemant

Sikka, president of Mahindra & Mahindra’s

farm-equipment business—which makes

around 300,000 of the things a year, more

than any other company anywhere—sat in

his Mumbai flat near his shuttered main

factory wondering if he still had a business.

India’s nationwide lockdown that began a

couple of weeks earlier led analysts to fore-

tell doom for all manner of vehicle sales.

Instead, Mr Sikka’s main challenge has

turned out to be meeting unprecedented

demand, both at home and abroad.

The Indian conglomerate’s tractor sales

have broken records since May; production

is operating at 100% of capacity. At its

American factories the company has added

a second shift. Regional managers around

the globe are clamouring for tractors to re-

plenish sparse dealer lots.

After collapsing in March, the share

price of Mahindra & Mahindra has dou-

bled, pulled along by the booming tractor

division. So have the share prices of Deere

and agco, two American manufacturers of

farm equipment, suggesting that investors

are eyeing bountiful profits from the in-

dustry as a whole.

Mahindra’s particular niche—durable,

low-horsepower machines—has been es-

pecially sought-after. In America that is the

fastest growing segment, with sales up by

18% in the first nine months of the year,

compared with 2019, according to the Asso-

ciation of Equipment Manufacturers. By

contrast, sales of the largest tractors have

The pull of India’s biggest

tractor-maker

Farm equipment

Fertile ground